George Osborne will on Friday confront head-on the mounting pressure from rightwing MPs and activists for the Conservatives to break free from Labour’s spending plans and fight the next election on a platform of tax cuts.

The shadow chancellor will use a speech on tax reform to address calls within his party for a far more radical stance on tax and spending. The Tory leadership has adopted a cautious fiscal policy to try to neuter electorally damaging accusations from Labour that a Conservative government would cut vital public services.