GEORGE Osborne has given his clearest warning yet that Britain could leave the European Union unless Brussels undertakes fundamental reforms to improve competitiveness, create jobs and protect the rights of countries which are not in the single currency.

The Chancellor also made clear that if the UK were unable to secure support for reform from all 28 member states, then it was ready to press ahead with a smaller group of like-minded countries under what he termed "enhanced co-operation".

He claimed EU treaties were no longer "fit for purpose" and failure to reform would condemn the continent to a future of economic crisis and decline. The broadside came as a letter signed by 95 Tory backbenchers earlier this week called for a Westminster veto on all EU legislation.

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But Conservative former minister Tim Loughton, a member of the Fresh Start group pressing for EU reform, dismissed the letter as "something of a sideshow", stressing the UK's relationship with Europe "won't be up to those 95 MPs, whoever they may be", but the Briton's voting in the referendum in 2017.

Labour's Douglas Alexander said: "The Conservative leadership seems to be spending more time negotiating with their backbenchers than with Europe."