This article is more than 6 years old

This article is more than 6 years old

George Osborne will today deliver a stark warning to Britain's European partners that the UK will leave the EU unless it embarks on whole-scale economic and political reform.

The chancellor's comments come as the Tory leadership tries to regain the initiative on Europe, after 95 MPs signed a letter calling for the dismantling of the core principles of the EU.

In a speech to a conference organised by the pro-reform Open Europe thinktank and the Fresh Start group of Tory MPs, Osborne will say: "There is a simple choice for Europe: reform or decline. Our determination is clear: to deliver the reform, and then let the people decide."

Tory backbencher Bernard Jenkin won the support of about 100 MPs for a letter to David Cameron calling for the British parliament to be given a veto over all EU laws.

Such a move would dismantle the rules of the European single market which were drawn up by Margaret Thatcher's ally, Lord Cockfield, to prevent France imposing protectionist measures by denying member states a national veto.

Jenkin suffered a blow when Andrew Tyrie, the chairman of the Commons Treasury select committee, said he had been wrongly listed as a supporter. But Osborne will make clear that Cameron will push for wide-ranging reforms if he wins the general election next year with a mandate to renegotiate the terms of British membership.

Osborne will tell the conference: "The biggest economic risk facing Europe doesn't come from those who want reform and renegotiation – it comes from a failure to reform and renegotiate.

"It is the status quo which condemns the people of Europe to an ongoing economic crisis and continuing decline."

Osborne will say the EU suffers from a chronic lack of competitiveness and that the European economy has stalled over the last six years while the Indian economy has grown by a third and the Chinese economy by 50%.

He will say: "Make no mistake, our continent is falling behind. Look at innovation, where Europe's share of world patent applications nearly halved in the last decade. Look at unemployment, where a quarter of young people looking for work can't find it. Look at welfare.

"As Angela Merkel has pointed out, Europe accounts for just over 7% of the world's population, 25% of its economy, and 50% of global social welfare spending. We can't go on like this."

Osborne is expected to say that Cameron will press for a realignment of the rules of the single market to ensure the 18 members of the eurozone cannot outvote the 10 EU members, such as Britain, which have not joined the single currency.

Tory divisions will be highlighted at today's conference as MPs from the Fresh Start group challenge Jenkin's letter.

Mats Persson, director of Open Europe, said the Tory party risks "becoming its own worst enemy" as the likes of Jenkin table unrealistic demands.

Persson said: "There is a huge debate in Europe about what the EU's defining mission should be in future – the single market or the euro?

The chancellor should clearly set out that the UK cannot accept an EU dominated by euro countries preoccupied with shoring up their currency at the expense of those who cannot join for democratic reasons. If the EU becomes a political extension of the euro, it'll be hard for the UK to remain a member.

"As our conference clearly shows, there's growing momentum for reform across Europe. However, the Tory party risks becoming its own worst enemy when it comes to achieving a new settlement in Europe."

David Mowat, the Tory MP for Warrington South, who will address the conference, said that the Fresh Start group was proposing a constructive set of proposals to help the prime minister in his negotiations if he won the election. "The letter is a different initiative," he said.

The Fresh Start group, led by the No 10 policy board member Andrea Leadsom, will focus on three areas of reform at the conference.

The areas include delivering Cameron's proposal to keep Britain apart from moves to create an "ever closer union" in the EU; completing the single market, especially with services; and delivering William Hague's plan of bumping up the EU's "yellow card" system to a "red card" one.

This would mean that a third of national parliaments could block EU laws if they can reach an agreement.