Reporting to MPs, he said ECOFIN reached political agreement on a tax package based on earlier proposals making it clear 'that the objective of the EU should be exchange of information on as wide a basis as possible' instead.

He added in reply to a question in the Commons: 'It confirmed the rejection at Feira of an EU-wide withholding tax which would have had severe implications for the London bond market.'

Brown said that under the agreement 12 member states will move to the automatic exchange of information on the savings income of EU residents.

The remainder - Austria, Belgium and Luxembourg - will do so at the end of the first fiscal year when ECOFIN agrees unanimously that Switzerland, Liechtenstein, Andorra, San Marino and Monaco have agreed to do so as well to the same OECD standard.

The three EU countries will operate a transitional withholding tax of 15% from 1 January 2004, 20% from 1 January 2007 and 35% from 1 January 2010.

Brown said ECOFIN committed itself to formally adopting the tax package before the next full European summit.

This is, however, dependent on receiving firm offers from those excluded, that as third countries that they would enter into agreements to co-operate and make progress with the programme of rollback of identified 'harmful business tax measures' in member states and dependent and associated territories.