Conservatives have denied that leader William Hague made a deal with Michael Portillo to give his new shadow chancellor the freedom to dictate the party's economic policy.

According to reports, Mr Hague wrote a private letter to Mr Portillo before his surprise appointment to the shadow cabinet last week and promised the Kensington and Chelsea MP the power to decide all economic policy other than that relating to Europe.

But shadow chief secretary to the Treasury, David Heathcoat-Amory told the BBC that was categorically untrue.

'Unchallenged authority'

He said: "Michael Portillo works under William Hague.

"He's the shadow chancellor, he's obviously responsible for economic and financial policy and has already put his mark on that very effectively.

"But it is quite untrue that he has negotiated some separate deal that he has unchallenged authority which the shadow chancellor would not normally have.

"That is categorically untrue."

Conservative Central Office has also denied there was any private letter or agreement between Mr Hague and Mr Portillo.

Since becoming shadow chancellor, Mr Portillo has ditched two economic policies.

Last week, Mr Portillo announced the Tories would respect the Bank of England's independence and retain the minimum wage.

He has also appeared to have cooled over the Tory's guarantee to cut taxes over the lifetime of a government.

Mr Heathcoat-Amory said: "Michael Portillo is entitled to look at the policies for which he is responsible.

"He's entirely happy with the promise to bring down the burden of taxation on people, to reduce the power and cost of the state and back people who work and save."

On Tuesday, Mr Hague referred to the policy of cutting taxes as a proportion of national income as an "aspiration" rather than a guarantee.

But Mr Heathcoat-Amory played down the comment, saying that Mr Hague may have used a different word but remained committed to the policy.