Chancellor Jeremy Hunt has played down talk that he will not defend his seat at the next General Election in order to avoid a ‘Michael Portillo moment’.

Speculation emanating from his Surrey constituency about his plans has raised tensions at the top of government and the Conservative Party.

He is facing a growing challenge from the LibDems in a seat that is being split in two. Mr Hunt has been formally selected for Godalming & Ash, where his family lives – but that has not prevented speculation about his intentions.

Local sources suggest Mr Hunt fears a repeat of the 1997 election which saw the sitting MP Michael Portillo, who had been a government minister, lose his Enfield Southgate seat.

Mr Hunt’s position as Chacellor could be challenged if he declared he is standing down.  

A former minister told The Observer: “Barring a miracle, I can’t see Jeremy wanting to be in opposition under a new leader. And if he loses he will be the biggest scalp on election night. That is not a departure anyone would want. People in Surrey are saying he will not stand.”

The speculation has gathered pace following two heavy defeats for the Tories in the Mid Beds and Tamworth by-elections which saw Labour overturn massive majorities.

A spokesman for the Chancellor insisted: “Jeremy Hunt will stand as the Conservative Party candidate for Godalming and Ash at the next general election.”