Prime Minister Gordon Brown denies rift with Chancellor Alistair Darling

Gordon Brown today said it was "completely wrong" to suggest that he overruled Alistair Darling over taking tougher measures to reduce Britain's ballooning deficit.

He publicly backed his Chancellor, saying the pair worked "very closely together and continue to do so".

The Prime Minister was speaking amid reports that Mr Darling originally came up with "tougher" measures for this week's pre-Budget Report (PBR) but Mr Brown stepped in to maintain a multi-billion pound spending boost to protect frontline services.

Challenged by a journalist over the claim at a joint press conference in Brussels with French President Nicolas Sarkozy, Mr Brown said: "You are completely wrong. Alistair Darling and I have worked together for many, many years and work very closely together and continue to do so.

"I want to praise him for the Pre-Budget Report which he has given to the House of Commons which assures people that we have both a fiscal defect reduction plan and at the same time we can get resources to our combined public services."+

A Treasury spokesman said: "It is wrong to suggest that there was any disagreement between the Prime Minister and the Chancellor about the PBR.

"The Chancellor and the Prime Minister have consistently said that they are determined to protect frontline services while halving the deficit over four years.

"That's what the Chancellor's PBR does. It sets out the Government's priorities: ensuring growth by supporting the recovery and protecting frontline services while living within the country's means - with a clear plan to halve the deficit in four years.

"This involves greater efficiency, and tough but fair decisions on pay restraint, savings across government, and tax."

Today's Guardian reported that the Treasury wanted to raise the VAT rate above 17.5% next month - a move that could have raised billions for the public coffers.

But Mr Brown and his allies opted instead for a later hike in national insurance, the paper said, fearing the VAT rise would hamper any economic recovery.

In Wednesday's PBR, Mr Darling predicted borrowing costs would increase this year to £178 billion - up from a previous estimate of £175 billion.

He pledged to halve the deficit over the next four years in an "orderly way" that would not threaten the recovery.

Among the revenue-raising measures unveiled were a 1% pay rise cap for public sector settlements, and a 0.5% increase in national insurance contributions - but both of these come in from 2011, well after the next election.

Some of the immediate measures announced included the restoration of the VAT rate to 17.5% from 15% on January 1, and a one-off 50% levy on bank bonuses over £25,000.

The report was widely seen as drawing the battle lines for an election expected in the spring.

Yesterday Mr Darling was warned by the influential Institute for Fiscal Studies (IFS) he must find £36 billion in new spending cuts if the Government is to meet its commitment to halve the budget deficit over the next four years.

The IFS said the figures in Mr Darling's PBR implied "severe cuts" across departments such as housing, transport, higher education and even defence.