George Osborne is set for a head-on clash with the Conservative right over tax policy after one of the party’s most prominent neo-Thatcherites warned that the shadow chancellor’s economic proposals would lose the Tories the next general election.

In a keynote speech to the Conservative conference on Tuesday, Mr Osborne will mount the toughest defence yet of his decision not to pledge tax cuts ahead of the next election, insisting “sound money is the oldest Conservative principle of all”. His message will be an attempt to face down Edward Leigh, the MP who chairs the rightwing Cornerstone group, and who on Monday launched an attack on Mr Osborne’s economic policy.