Gordon Brown is preparing to increase the tax on dumping rubbish to encourage households and councils to recycle more waste and adopt greener policies.
But the Chancellor has vetoed plans for a 10p tax on supermarket plastic bags, which has been championed by Michael Meacher, the Environment minister.
The Treasury has decided that a levy on supermarket plastic bags to encourage people not to use so many is impractical and may lead to people taking black bin liners to the shops to get round the tax.
"There are no plans for this. Tax is a matter for the Treasury and the Chancellor is sceptical about this," a senior Treasury source said yesterday.
The idea of a plastic bag tax was floated by Mr Meacher, who was encouraged by the positive consumer response to such a tax in Ireland. He asked his officials to examine the practicalities of introducing the scheme in Britain.
But the Chancellor is understood to have stamped on the idea even before theminister has formally proposed the scheme to the Treasury.
Instead, the Chancellor is considering introducing a big hike in the landfill tax in next month's pre-budget report to force local councils to stop dumping so much waste and take recycling more seriously.
The tax may rise from £13 per tonne of rubbish dumped in landfill sites to about £30 a tonne after industry told the Treasury that the levy would not have an impact on behaviour unless it was at least doubled.
Money raised from the tax will be spent on environmental schemes and will not be used to pay for increases in schools and hospitals, Treasury officials indicated.
Environmental groups welcomed plans for raising the landfill tax but urged the Treasury to close a loophole that allows companies to avoid 20 per cent of tax. Downing Street will next month publish a strategy paper on disposing waste in England, with new ideas on how to encourage recycling.