Blair offered to stand down if Brown supported euro referendum

Gordon Brown has turned down an astonishing deal under which Tony Blair would stand down as Prime Minister in return for the Chancellor giving the go-ahead for a euro referendum.

As the Government's turmoil over the single currency deepened, sources in the Blair and Brown camps told The Independent that the two men discussed "the succession" during preliminary talks on the single currency last year.

The Blair camp is convinced Mr Brown is not against the euro but wants to take Britain in - after he has become Prime Minister. One Blair ally said: "Gordon was offered the keys to Number 10. He turned them down. The problem is not that Gordon is against the euro, it is that he wants to do it as Prime Minister." A Brown ally said Mr Blair's offer to make way for the Chancellor was in Mr Brown's mind when he said on Sunday: "I would never make some sort of private arrangement when the national economic interest is at stake."

Some cabinet ministers believe a private deal has been discussed again during the current tense negotiations on the euro policy statement the Chancellor will make on 9 June. They hope that an agreement can still be struck that allows Mr Blair to call a referendum soon after the next general election with Mr Brown campaigning for a "yes" vote. After achieving his ambition to take Britain into the euro, Mr Blair would leave Downing Street and urge Labour to elect Mr Brown as his successor. But other ministers believe the Chancellor will hold out until he is convinced that the economic conditions are right.

However, today Mr Blair denied discussing a deal that would see him stand down in favour of Mr Brown in return for the Chancellor's support for euro membership. "The answer is no," the Prime Minister said at his monthly press conference in Downing Street.

Writing in The Independent today, the former foreign secretary Robin Cook criticises the Government's "paralysis" on the euro and says its policy is "a recipe for inaction". He says the challenge for pro-Europeans is how to "convert Gordon Brown to the conclusion that it is in his interest to endorse the euro" and that it would be "a triumph" for him as well as Mr Blair.

Attempts by Mr Blair and the Chancellor to deny divisions were undermined when Peter Mandelson, the former cabinet minister, said on Tuesday that the Prime Minister had been outmanoeuvred by an "obsessive" Mr Brown.

Yesterday, Downing Street disowned Mr Mandelson's remarks and Brown allies hit back at him, deepening the personal feud that began when Mr Mandelson backed Mr Blair for the Labour leadership in 1994. The former Treasury minister Geoffrey Robinson accused Mr Mandelson of trying to "drive a wedge" between the Prime Minister and the Chancellor.

Clare Short, the former international development secretary, accused Mr Mandelson yesterday of "obsessive mischief-making".