Blair backs euro in face of doubts from Chancellor

A simmering dispute between Tony Blair and Gordon Brown over whether Britain should join the euro before the next general election burst into the open yesterday.

As the Prime Minister made a pro-European speech saying that the single currency made "economic sense," the Chancellor hinted strongly that Britain would run its own fiscal regime outside the eurozone for the next few years.

In a further twist, Geoffrey Robinson, a close ally of Mr Brown and former Treasury minister, predicted that the Chancellor's five tests on whether Britain should join the euro would not be passed.

"The result of the economic assessment is probably no," he said. "The British and European economies are just so out of phase at the moment."

Speaking in Cardiff, Mr Blair called for greater integration inside the EU on issues such as immigration, crime, economic reform, defence and security. "On the euro we should of course join if the economic conditions are right. A single currency with a single market for Europe makes economic sense," he said.

Mr Blair added that he wanted Britain to "play its full and complete part" in Europe. He suggested that if Britain did not join the euro in the near future, it would miss the chance to shape the rules under which it operated. "The problem with hanging back ... is that in the end, Europe does move on and the choice is then to remain a straggler, drop out altogether or to catch up," he said. "Hanging back rarely results in us not participating finally, it just delays it so the participation is on terms set by others. And often this has meant less favourable terms."

Mr Brown contrasted Britain's economic performance with the "sluggishness" in European countries such as France and Germany. He said: "We created a framework in 1997, both with Bank of England independence and with the new fiscal rules we set. I believe that framework has been resilient and robust, I believe we have proved over the last few years that while other countries are in recession, we can keep growing."

The Chancellor launched a media offensive yesterday after his pre-Budget report was greeted by a barrage of hostile newspaper headlines. He staked his personal reputation on his optimistic forecasts for the British economy and denied that he abandoned his "prudent" strategy by announcing a big rise in borrowing. "I take full responsibility for the figures and the decisions that I make."

After predictions that he could face a "black hole" in his finances if his growth forecasts prove wrong again, Mr Brown refused to rule out further tax rises. "I wouldn't come to the British people and ask for more unless it was absolutely necessary," he said.

The Tories claimed yesterday that the Chancellor's package was unravelling because "black holes" and "stealth taxes" were emerging from the small print of the pre-Budget report. Michael Howard, the shadow Chancellor, wrote to Mr Brown to ask why he did not mention in his Commons statement that council tax bills would rise by 7.2 per cent next year, resulting in a 16.3 per cent rise over two years. He said it was surprising that Mr Brown forecast a dramatic growth in corporation tax receipts even though British business was struggling.