The Conservatives have slammed the chancellor's euro announcement as indecisive prevarication designed to hide deep Labour splits.

Michael Howard said Gordon Brown was "papering over the cracks" in his party with an announcement offering something for everyone.

The shadow chancellor lambasted the government's "broken down" ability to deliver.

Howard said there was a "faultline at the heart of government" dividing Brown and Tony Blair.

And he warned that the government was running away from a referendum it knew it could not win.

He derided the Treasury's assessment as flawed, as he attempted to pick holes in the conclusions of Brown's famous five tests.

The chancellor's "most important" test on economic convergence had failed because of differences in housing markets, he said, and his solution would either be "more taxes or more boom and bust".

"Why should we go into a one-size-fits-all interest rate when it's not the right rate for our economy?" he asked.

The Conservative Party had "learned its lesson" for fixed exchange rates from the disastrous ERM policy in the early 1990s, MPs were told.

"This whole exercise has been a deceit," he said. "The only reason we are not having a referendum now is that they know they can't win it."

Liberal Democrat Treasury spokesman Matthew Taylor said that the government had in effect said "no" to the euro, the same position as in 1997.

"The time for indecision is over. Warm words are not enough. It's time for action. On that, the jury is out," he said.

But the chancellor's comments were welcomed by senior pro-euro MPs.

Former chancellor Ken Clarke said he looked forward to an early referendum on the single currency.

He urged Brown to have the "courage of his convictions" and inject a fresh sense of urgency into the process.

Stephen Byers said the government had to move from "prepare and decide" to "campaign and convince".

Trade unions also gave a positive response to the chancellor's statement.

"I very much welcome the emphasis today on preparing for Euro entry. It's definitely a case of 'not yet', rather than 'not likely'," said TUC chief Brendan Barber.

"That will be welcomed widely in industry. If the message had gone out today that the UK was turning its back on the euro and disengaging from Europe, the risk to jobs and investment would have been very high.

"The mood music has changed decisively today. We now have a project with a purpose. The chancellor has set out a clear series of steps towards a positive decision and a referendum. There is now a real sense of momentum."