Euro referendum unlikely before 2007

The chances of a referendum on Britain joining the European single currency being held during this parliament are all but dead after the Chancellor announced that he would not revisit his five economic tests until the next Budget.

Nine months after his last euro assessment, Gordon Brown said it was still too soon to take a fresh look at the issue. With a general election expected next spring, it is unlikely that a referendum will now take place before 2007. The Chancellor's downbeat approach was underlined by a new Treasury study that concluded that it would not be in Britain's "national interest" to join the European Union's stability and growth pact.

Mr Brown announced in June last year that only one of his five tests on whether euro entry would be good for the economy had been passed.

But at the time he left the door open for a referendum in this parliament by saying he would consider in this Budget whether the tests should be reassessed. A positive decision could have cleared the way for a poll as early as the autumn.

Mr Brown told the Commons yesterday that while the Government did not propose a euro assessment be initiated "at the time of this Budget", the Treasury will review progress "at Budget time next year".

The Treasury study, entitled The Stability and Growth Pact: a Discussion Paper, found that flexibility was the key to achieving a low national debt. Unlike the EU rules, which demand a balanced budget every year, Mr Brown's fiscal rules allow him to borrow for investment over an economic cycle. In essence, Britain maintains its spending on public services without raising taxes by borrowing more in the bad times and paying back debt in the good times.

In some of his most hardline remarks on the dangers of the EU rules, the Chancellor stressed that the Treasury study proved that his own rules were superior to the European model. "I will not neglect the need for long-term investment and impose an annual balanced budget rule, which would cut spending regardless of the debt level or the economic cycle," he said.

"Such a policy, whether imposed by a future government or a rigid interpretation of the European stability and growth pact, would in fact be an exact repeat of the mistakes of Britain's stop-go past and put at risk British stability and growth."

Mr Brown also published a report on measures to promote flexibility in Britain and Europe to overcome barriers to UK entry. It made clear that the EU lags way behind the UK and US on flexible working.

The only one of Mr Brown's tests to be passed in June was whether the euro would be good for Britain's financial markets.

The Chancellor said then that tests on economic convergence with the eurozone, and whether the system had the flexibility to cope with economic shocks, had not been met. The remaining tests on investment and employment were dependent on those two being met, he said.