Gordon Brown, the guardian of the government's five economic tests for euro membership, has said the decision will be vital for the long term future of the UK.

Making his annual Mansion House address to City leaders on Wednesday, the chancellor said that "because of its constitutional significance as a decision...the economic benefits should be clear and unambiguous".

His comments mark a renewed determination to stress that economic rather than political factors will drive any government decision to hold a referendum on membership of the single currency.

"Often the tests are described as the Treasury's tests or the government's tests, but neither description does justice to their critical role in assessing whether EMU membership is in the British national economic interest. As Tony Blair said only last week they are not window dressing for political appearances.

"While the Maastricht criteria can judge convergence in the short term, the five tests go to the heart of what is required for the long term future of our economy: they are the means of judging the decision on EMU membership against the government's central objectives - full employment and high and sustainable rates of investment and growth.

"The tests are, in my view, important to everyone who cares about the economic future of Britain," Brown said.

The tests relate to how well prepared the British economy is for a monetary policy reflecting conditions across the European continent.

They cover the degree of convergence between Britain and the economies of the single currency, flexibility to cope with economic change, the effect on investment, the impact on the financial services industry and the impact on employment.

Five tests

Revealing more details the Treasury's thinking on economic convergence, the chancellor said he was examining "the output gap, inflation, interest rates and the real effective exchange rate, as we analyse not just short term cyclical factors but also long term structural issues to assess whether convergence issustainable and durable".

He said the impact of the housing market would also be considered, along with an analysis of national business cycles and exchange rates.

"A high degree of convergence does not eliminate shocks and changes to the internal and external economic environment," said the chancellor.

"So the work leading to the assessment of the second test - the flexibility test - is focussed on building up a foundation for evaluating how alternative adjustment mechanisms within EMU will help the economy adjust given a single European interest rate."

Brown hinted that taxes may have to be used to control economic demand if Britain joined the euro.

"EMU membership would also place a greater premium on the success of domestic instruments of policy as an adjustment tool, in particular, fiscal policy and fiscal frameworks," he said.

On investment, he said the Treasury would examine the effects on both public and private sector spending.

And to City leaders he pledged that "the decision on EMU must ensure that the UK remains an attractive location for financial services".

Turning to the euro's impact on British jobs, he said the considerations included the likely impact of EMU on trade and the lessons can be learned from the experience of the US as a monetary union.

Brown also cited the robustness of the arrangements for macroeconomic stability - including the stability and growth pact, as an important factor.

The euro-zone pact has come under fire for both failing to reign in spending in powerful countries like France and Germany, while at the same time failing to provide sufficient flexibility in the event of an economic downturn.

"If the tests are met then I believe we should join. If the tests are not met, we should not. The tests are decisive. There is no hidden agenda: only a resolution to make the right long term decisions for Britain in the national economic interest."

The Conservatives said the chancellor had failed to address some of the key issues facing the UK economy.

Shadow chancellor Michael Howard said: "We have been spending more than we earn, savings are at an all-time low, while productivity and competitiveness have been suffering.

"For the economy to prosper, British business needs to be able to win orders and create jobs. Yet government taxes and red tape are obstacles in their path.

"The CBI says that they have never known such a 'level of mistrust' in the British business community with this government in recent years."