Swedish vote will not deflect British poll, insists Blair

Sweden is warned by European leaders that it will lose out while British ministers admit privately that the No vote is a setback

Downing Street insisted yesterday that Sweden's "no" vote to joining the euro would not alter the prospects of Tony Blair calling a referendum on the single currency in Britain.

Privately, however, ministers admitted that the Swedish people had delivered another setback to Mr Blair's rapidly diminishing hopes of calling a vote before June 2006.

While Number 10 stood by the Prime Minister's previous statement that a poll was possible before the next general election, ministers believe that Mr Blair now plans to hold a referendum a year or two after the next election if he retains power. One government insider said: "This could be the final straw."

The Prime Minister was looking for a "yes" result in the hope that such a vote of confidence in the euro would allay the fears of sceptical Britons. Sweden's decision also undermines one argument being used by euro supporters: that Britain could soon be the only one of the 15 European Union members outside the currency. But now there seems little prospect of early entry in three countries -- Sweden, Britain and Denmark.

Mr Blair's official spokesman said yesterday: "The Swedish referendum is a matter for the Swedish people, and of course the Government respects their decision. It would have respected it whatever decision the Swedish people had made. But it does not affect our own policy on the single currency."

The statement appeared at odds with Mr Blair's own words at a press conference two weeks ago. He said then: "It is obviously important as to what people within the European family are deciding on these issues." While he said the decision in Sweden was a matter for its people, he added: "Of course it will have a bearing on the debate everywhere."

Even before the Swedish referendum, the odds on the British people voting on the euro before the next election were receding. When Gordon Brown, the Chancellor, delivered a "not yet'' verdict on the single currency in June, he said a "roadshow" would be launched this summer to enable the Government to make the case for the currency to the British people.

But the "roadshow" has not materialised and there is no sign of it. It now appears that the pro-euro rhetoric, which accompanied the June decision. was little more than a fig-leaf to cover Mr Blair's embarrassment at the "not yet" decision.

Downing Street insisted yesterday that real measures were being taken to help Britain to meet the five tests. These include reforms to the housing market, introducing regional pay in the public sector, and moving to the European harmonised index of inflation.

Mr Brown, who is more cautious than Mr Blair on early euro entry, will give a progress report on the impact of these changes in his Budget next March. But there is no expectation among ministers that he will order another assessment of the five tests, so the issue would then be shelved until after the election.

The Swedish vote caused gloom among euro supporters. Keith Vaz, a former minister for Europe, said: "The Swedish euro referendum result was a bitter blow to the pro-euro campaign in Britain. [In June] the Prime Minister promised that the Cabinet would lead the euro campaign in Britain. This simply is not happening. Unless we begin the campaign immediately, the euro referendum campaign in Britain will be over before it's begun."

Chris Bryant, the chairman of the European Movement, said the rules governing the stability pact, which underpins the single currency, would probably be redrawn over the next 18 months. "My worry is that France and Germany will have a seat at the table, while Britain and Sweden won't."

Britain In Europe, the embryo "yes" campaign, is suffering an exodus of staff, and Simon Buckby, its campaign director, will resign at a board meeting early next month. One source said yesterday the prospects of a referendum in this parliament were "vanishingly thin".

Michael Howard, the shadow Chancellor, said: "I am pleased for the people of Sweden and I hope that the lesson which will be drawn in this country is that people will realise that the question of whether Britain should join the euro should be seen for the dead duck that it is."