Blair: I'll take Britain into euro by 2007

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Tony Blair has set a target of 2007 to take Britain into the euro, and wants the Government to agree to a public pledge to secure membership by that date.

The move suggests the Prime Minister intends to call a referendum soon after the general election, which is expected in May or June next year. Although he has insisted he would serve a full third term if Labour retains power, some ministers expect him to stand down after such a referendum.

A changeover plan drawn up by the Treasury envisages a four-month gap between the Cabinet's decision to call a referendum and the plebiscite. If the public were to vote in favour, there would be a delay of between 24 and 30 months before euro notes and coins became legal tender. The pound would operate alongside the euro for six months while it was phased out. This plan means that Mr Blair could achieve his goal of membership in 2007 by holding a referendum in the autumn of next year.

Gordon Brown is opposed to the public announcement of a formal target and argues that Labour must not rush such a crucial decision. He also fears that naming a date could prejudge the Treasury's five economic tests for single currency membership.

Under a compromise plan favoured by some Downing Street aides, the Prime Minister and the Chancellor might agree a target in private and gear the Government's policies towards it. But they would stop short of a public declaration.

The Blair plan will surprise ministers, who thought the issue had been put on hold after the collapse in the Prime Minister's trust ratings because of the Iraq war and the death of the government scientist David Kelly. One said: "I don't think Gordon will buy a target date. He doesn't want to make a big song and dance about the euro. But they could agree to work towards an informal target."

Allies of Mr Brown said a target might not be achievable because of factors beyond the Government's control. "The biggest issue is the progress towards economic reform in Europe," said one.

The proposal shows Mr Blair has not given up hope of taking Britain into the euro, which he believes is the country's destiny and was one of his two main goals - along with reforming public services - when he won power in 1997.

In his Budget in March, Mr Brown will close the door on a referendum before the next election by saying there is no case for re-running the five tests. Last June, he said only one of them had been passed.

Insiders said there was "no row" between Mr Blair and Mr Brown on the euro as they explored options before the Budget. Relations cooled in the autumn, when the Chancellor set out a traditional Labour agenda in his speech to the party conference, and his attempt to reclaim a seat on the national executive committee was vetoed by Mr Blair.

But their relationship has improved markedly since the election of Michael Howard as Tory leader. Allies say both men acknowledged that they could not afford the luxury of divisions in the face of a reinvigorated Opposition.

Their discussions about the Budget are bound to provoke fresh speculation about a deal for Mr Blair to agree to stand down and support Mr Brown as his successor in return for the Chancellor allowing a referendum to go ahead.

Mr Blair's plan to set a target will be welcomed by supporters of euro entry, who have become disenchanted with Mr Blair's failure to act. Writing in The Independent in May, the former foreign secretary Robin Cook said the Government would escape its "paralysis" on the euro only if it set a date to join the currency.