Third-term referendum option 'gaining ground in Downing St'

Downing Street is considering delaying a euro referendum until after the next general election due in 2005, according to reports last night.

The scenario of a delayed referendum on the euro is said to be gaining ground among pro-Europeans surrounding the Prime Minister, The Times claimed. The newspaper also said that in an interview earlier this week, the Chancellor, Gordon Brown, had left open the option of a delayed assessment on the five economic tests, which have to be met before a referendum is called, until summer 2005.

Some observers suggested last night that one reading of the story was that Mr Brown was the source, which would infuriate Tony Blair as it breaches the careful compromise of not talking about the euro beyond current policy.

The Treasury stuck last night to the well-worked policy that the Government would assess its five economic tests for British membership of the single currency by next June. Both the Treasury and Downing Street said they did not recognise the reports. However, the clear implication was that Mr Brown, widely seen as being sceptical than Mr Blair on the issue, had suggested that his tests could not be passed in the short term.

The Times claimed Downing Street sources had indicated a referendum in a third Labour term was increasingly an option, with the first six months after the election being the most plausible time.

The newspaper suggested that Mr Brown had indicated that if next year's assessment proved negative, a fresh appraisal would be made after the next election and a snap referendum would then be held within six months.

With the Chancellor in effect holding a veto over the issue, any hint that he wants to delay a poll would come as a blow to the Prime Minister and pro-European ministers.

In recent months, Mr Blair has repeatedly stressed his passion for the single currency and declared that it is Britain's "destiny" to be at the heart of Europe. The rapid strengthening of the euro in recent weeks has also emboldened some in the Government into thinking that a referendum may be likely next year.

The Prime Minister wants to be remembered as the man who took Britain into the euro, but the Chancellor is keen not to endanger the economic legacy that has helped make his own reputation.