David Cameron is to be urged by a group of Eurosceptic Tories to set out two "nuclear" options to European leaders to ensure that key British interests are protected in a reformed EU.
In a manifesto that is being launched to coincide with the prime minister's long-awaited speech on Britain's place in the EU, the Fresh Start group of MPs will say that major changes need to be made to overcome "malicious" moves in Brussels.
The prime minister is expected to announce that he will include a pledge in the Tory manifesto for the next election to hold a referendum on new terms of Britain's EU membership. He will demand the new settlement as the price of British support for a major revision of the Lisbon treaty to underpin new governance arrangements for the eurozone.
Andrea Leadsom, the Conservative MP for South Northamptonshire who was one of the founders of the Fresh Start group, insists that Britain should adopt a hardline stance because Angela Merkel, the German chancellor, wants to transform the EU.
"This isn't any old treaty," Leadsom told the Guardian. "This is the one that redefines the entire EU. This is what nobody ever signed up to. This is where you are creating a federal states of Europe.
"If there is a treaty change what we have to be doing long in advance is saying to our European colleagues: 'Here is one we prepared earlier. There is a trade here. You want to completely change the terms of the EU. You want to go to fiscal union. That was never the deal so here is what we want in return.'"
The two "nuclear" options in the Fresh Start manifesto, Options for Change, are:
• Handing Britain an effective veto over financial services regulations to prevent what Leadsom describes as "'malicious' directives that are just designed to shut down financial services". At the moment these are decided by qualified majority voting (QMV), where no country has a veto, to stop individual countries introducing protectionist measures into the single market.
Under the Fresh Start plan an agreement known as the "Luxembourg compromise" would be formalised. Dating back to 1966, after Charles de Gaulle staged the so-called empty chair crisis, this allows any member state to call a halt to QMV if a vital national interest is at stake.
Leadsom said: "We would need to have the ability under a sort of formalised Luxembourg compromise to be able to resist measures that just harm British financial services and have no other purpose. That would be our nuclear option in our manifesto."
• Joining forces with like-minded member states to end the working time directive, which sets down a minimum number of holidays each year and the amount of rest workers must have every 24 hours. It also says that nobody should be expected to work more than 48 hours a week, though British workers can opt out of this requirement.
Leadsom says Britain should use the Lisbon treaty to invoke the "yellow card" system by talking to the other 15 member states that have various opt-outs. "The other nuclear option we are proposing would be potentially on the working time directive. Under the Lisbon treaty, you have this yellow card system where a majority of member states can get together and say we don't like this, the European commission take it away and look at it with a view to kicking it out."
Leadsom said: "People do say: 'Aren't you just cherry picking?' I say: 'Guys, you are surely the ones who are cherry picking. This isn't the EU we signed up to. This is a negotiation.
"You want something and there is a price for that. Here is our price. Actually it is you who are cherry picking. You want to use the EU institutions for something you want to do. They all say: 'Yes, it is a reasonable point.'"
Leadsom's remarks are echoed by George Eustice, the MP for Camborne and Redruth, who founded the Fresh Start group with her, and Chris Heaton-Harris, the MP for Daventry. Eustice, Cameron's former press secretary, says No 10 is nervous about the group's idea. He believes this is a mistake.
"They are slightly nervous about embarking on the journey," Eustice tells the Guardian. But they have to see it in different terms. "You could achieve a chunk of it during this post-2014 new treaty, which would be more about a fundamental reordering. But along the way you might do other things like limit the scope of the European court of justice."
Eustice says that by renegotiating the terms of its membership, Britain will show that it remains committed to the EU, though it would have to reform. Eustice said: "A very damaging perception has taken hold in some other European capitals that Britain is looking for the exit. That is partly just because of the tone of the discussion here.
"It is all about in-out referendums and you get stuck in the rut of a referendum discussion. The prime minister's speech should be as much aimed at other European capitals as it is at a domestic audience. He needs to carve out an alternative British vision for the future of Europe and what he wants it to look like. He wants it to be more flexible. He wants to give it the ability to evolve and to reach out to countries, including Germany and the Nordic countries, who have their own issues with certain aspects of EU policy."
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