Row over Brown adviser's euro referendum warning

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Anne McElvoy: What has happened to turn Mr Blair into a eurosceptic?

Labour and Tory MPs demanded an inquiry yesterday into the role of Ed Balls, the Treasury's chief economic adviser, after he made a controversial speech opposing an early referendum on the single currency.

A fracas erupted after The Independent disclosed yesterday that Mr Balls, Gordon Brown's closest aide, told Labour supporters at a private seminar that a referendum before the next general election could split the party and put Britain's economic stability at risk.

As pro-European ministers urged Mr Brown to rein in Mr Balls, he was accused of making a "political" speech breaching the rules that bar civil servants from political activity. David Clark, former special adviser to the Commons Leader, Robin Cook, said Mr Balls's suggestion that Labour should keep out of the euro to keep the Tories divided showed "the way in which the Government has cynically put its own tactical interest before the interest of the country".

Mr Clark told BBC Radio 4 that there was a "rather alarming blurring of the distinction between special advisers and government advisers" and suggested that Sir Richard Wilson, the Cabinet Secretary, should investigate the matter.

Andrew Tyrie, a former Treasury special adviser and Tory MP who serves on the Commons Treasury Select Committee, said he would be urging the committee to summon Mr Balls to explain his speech.

Mr Tyrie said the American-style advisers brought in by Labour should be made accountable to Parliament. "They are effectively unelected ministers," he said. "They are the people who are really running the country and I don't think that is acceptable."

Last night the Treasury said Mr Balls had not broken the rules because he had remained a special adviser when he was appointed chief economic adviser and was therefore exempt from the civil service rules on political neutrality.

It said there was "no problem" over the speech and there would be no investigation.

Angered pro-European ministers said the speech appeared to push the Government's settled policy on the single currency to the limit. One ministerial source said: "Tony Blair went out of his way [at the G8 summit] in Genoa to talk about elected members of the Government having a mandate to speak. Ed Balls does not."