Brown buries euro to capture sceptic voters

THE pound will never be ditched in favour of the euro while Gordon Brown holds the reins of power, his aides insisted last night.

Scotland on Sunday can reveal that although Treasury officials are already reviewing the infamous "five tests" devised by Brown to decide whether to join the single currency, the Chancellor has ruled it out.

Brown will seize the opportunity to scupper one of Tony Blair's remaining political ambitions by ruling that he will shun the euro as it would critically damage Britain's economic competitiveness.

Senior aides last night confirmed that, almost eight years after 12 European Union colleagues ditched their own notes and coins and began trading with euros, Brown still had no intention of taking Britain down the same route and was instead preparing to rule out membership for the duration of his own premiership if, as expected, he succeeds Blair next year.

"Gordon has made it clear, repeatedly, that this will be decided on the economics," a Treasury source said last night. "He has always harboured doubts over whether the time would ever be right to enter. This was last looked at three years ago and I don't see us getting any closer now. I think Gordon's going to be happy to kick this way past the long grass for as long as he's around."

One of the leading members of the pro-euro movement, Scottish peer Lord Foulkes, last night said the UK had missed a "brief window of opportunity" to enter the euro. But he accepted that staying out was the correct decision.

"It's not a live issue at the moment," said Foulkes, a former Labour MP and member of the advisory board of Britain in Europe. "To be honest, there is no enthusiasm or desire among even the most ardent in the movement to raise it again.

"Our economy is doing fine and there's a fairly obvious signal of that in the consistently strong performance of the pound against the euro."

The euro provoked one of the most damaging internal disputes during Blair's first term in office, as Brown insisted that the Chancellor should have the final say over whether or not to make the historic move.

The Labour hierarchy eventually managed a truce in the feuding with the judgment that the decision should be made on the basis of Brown's five tests, designed to gauge the degree to which the British economy had converged with the rest of the eurozone. Brown subsequently vetoed euro membership after concluding that Britain had missed most of the targets, rating compatibility of business cycles and economic structures, flexibility, conditions for long-term investment decisions, and the impact on financial services, growth, stability and employment.

But the Chancellor must now produce an updated assessment of the tests in his Budget next spring, in line with a commitment made three years ago.

Brown's closest ally, Ed Balls, who is now economic secretary to the Treasury, said: "The government's policy on membership of the single currency was set out by the Chancellor in his statement to the House of Commons in October 1997, and again in the Chancellor's statement on the five tests assessment in June 2003.

"The Chancellor announced in Budget 2006 that 'the government does not propose a euro assessment to be initiated at the time of this Budget'. The Treasury will again review the situation at Budget time next year as required by the Chancellor's June 2003 statement."

But the cross-party support for entering the euro has dramatically declined in the years since Blair enthusiastically fronted the pressure group Britain in Europe, which was expressly designed to campaign for membership of the single currency.

During the last election campaign, Blair himself acknowledged that the drive was running out of steam, observing that "the economics aren't in the right place" for Britain to abandon the pound.

Labour's manifesto pledged to maintain its "common-sense" policy on the euro, but did not commit the party to adopting the currency. The party insisted that the national economic interest, and the five tests, would determine any decision - and promised that nothing would be done until a recommendation to join was backed by a vote in Parliament and a referendum in the country as a whole.

The shift came after Kenneth Clarke, the most prominent Tory euro-enthusiast, admitted he had been wrong in his assumption of the currency's impact.

Although some larger UK businesses are already trading in the euro, a poll earlier this year revealed that support for euro entry among medium-sized British companies had hit an all-time low.

Research from business and financial advisers Grant Thornton showed only 35% medium-sized firms wanted to see the euro adopted, down from 42% last year, and 50% in 2003.