CHANCELLOR George Osborne raised the prospect of Britain leaving the European Union yesterday if the 28-nation bloc fails to undertake fundamental reforms.

Mr Osborne said more needed to be done to improve competitiveness, create jobs and protect the rights of countries which are not in the single currency.

Anti-EU groups said the message was just a smokescreen to get voters on-side and that the Tories were gung-ho about staying in Europe.

Mr Osborne suggested that if Britain was unable to secure support for reform from all EU states, it was ready to press ahead with a smaller group of like-minded countries under what he termed “enhanced co-operation.”

In a keynote speech, the Chancellor said that the treaties underpinning the EU were no longer “fit for purpose” and failure to reform would condemn the continent to a future of economic crisis and decline.

Mr Osborne said: “Europe urgently needs economic reform. Eurozone integration is necessary if the euro is to survive.

“But proper legal protection for the rights of non-euro members is absolutely necessary to preserve the single market and make it possible for Britain to remain in the EU.”

No2EU, which is running in this May’s European parliamentary elections, said the threat to leave was hogwash.

No2EU convener Brian Denny said: “Cameron and co regularly come out with threats and hot air in order to please their core voters.

“All they are doing in reality is pushing the same neoliberal agenda as Brussels with some small caveats.

“When it comes to a referendum they will line up with the Lib Dems and the political class to stay with the corporate empire they have done so much to create.”

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