David Cameron is heading for a battle on all fronts over Europe as ministers prepare to reject key ideas drawn up by the largest group of Eurosceptic Tory MPs and pro-Europeans dig in for a major confrontation with Downing Street.
As Eric Pickles became the second cabinet minister to warn that Britain may have to leave the EU, the government is understood to have decided that it will reject "nuclear" proposals that are to be outlined by the Fresh Start group of MPs this week.
The jostling within the Conservative party continued as it emerged that Kenneth Clarke is preparing to join forces with Lord Mandelson to make the case for whole-hearted British membership of the EU.
Ed Miliband warned that the prime minister was in danger of "sleepwalking" Britain towards the EU exit door. "I think it is incredibly dangerous what David Cameron is doing," the Labour leader told the Andrew Marr Show on BBC1 of the prime minister's plans to hold a referendum on renegotiated terms of British membership. "He is essentially sleepwalking us towards the exit door from the EU."
Cameron is planning to announce in a long-awaited speech on Europe, due to be delivered in the Netherlands later this month, that the Tory manifesto for the next election will include a pledge to use a treaty revision to repatriate powers to Britain. The new terms of British membership would then be put to the British people in a referendum after the next general election.
Pickles, the communities secretary, echoed a warning by the chancellor, George Osborne, that Britain should be prepared to leave the EU unless its demands are met. He told Pienaar's Politics on BBC Radio Five Live: "The logic is that any decision about our future in the EU has got to be one firmly based on national interests. If it's in our firm national interest that we should remain in the EU – and I sincerely hope that is the case – then we should stay. But we shouldn't stay at any price."
The prime minister is expected to show that there are limits to his demands when he rejects what have been described as "nuclear" options to be outlined on Wednesday by the Fresh Start group of Eurosceptic Tory MPs.
These were first outlined to the Guardian last month by Andrea Leadsom, a leading figure in the group, who called for an effective veto for Britain over financial services regulations to prevent what she called "'malicious' directives that are just designed to shut down financial services". At the moment these are decided by qualified majority voting (QMV). The veto would be introduced by formalising the so called "Luxembourg compromise", which dates back to 1966. This allows a member state to call a halt to QMV if a vital national interest is at stake.
She also called for Britain to join forces with like-minded EU member states to bring an end to the working-time directive, which says that no one should be made to work more than 48 hours a week. Britain has an opt-out. The directive could be challenged by the "yellow card" system in the Lisbon treaty, which allows a majority of member states to block a proposal.
It is understood the government will give a favourable response to the group's proposals to repatriate more than 130 powers from the EU. It is expected that the report will be hailed for proposing "interesting and creative" ideas as ministers praise the group for drawing up proposals that are designed to keep Britain in a reformed EU.
But the two "nuclear" options are expected eventually to be rejected. One Whitehall source said of the veto proposal: "There are some interesting points about mechanisms and, yes, there are emergency brakes in the Lisbon treaty. But do we want France to have the same powers? Do we want a President Mélenchon [the left-wing candidate who polled strongly in the first round last year] to say he does not like the idea of Asian financial houses setting up in London?
"You have to think through the consequences of these proposals. How do you define financial services? They are not defined in the treaties. It is all single market stuff which is decided by QMV."
The prime minister is keen to reform the working-time directive. But there are doubts about whether Leadsom's "yellow card" proposal can work. It is understood that this cannot be used to repeal existing legislation.
George Eustice, the prime minister's former press secretary who is one of the founders of the Fresh Start group, said: "We have put forward a wishlist which we think is a helpful contribution to the debate. The government has a difficult job in deciding what it can achieve in the negotiations. Putting constructive ideas on the table is preferable to the alternative of everyone obsessing about a referendum on leaving the EU."
Clarke and Mandelson are to join up in a new group called Centre for British Influence through Europe, which, the organisation hopes, will turn back the rising tide of Euroscepticism.
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