David Cameron sought to rally restive Tories with a pledge to use Britain's veto to block the European Union budget if it is not in the UK interest.

As the Conservative Party conference opened in Birmingham, the Prime Minister said he would not stand for "outrageous" attempts to increase the overall EU budget in forthcoming negotiations on spending for the period 2014 to 2020.

"If it comes to saying 'no' to a deal that isn't right for Britain, I'll say 'no'," he said in an interview with The Sunday Telegraph.

He also proposed a "bold thinking" plan for the EU to have separate budgets - one for the 17 eurozone nations and another for the 10 - including Britain - outside the single currency.

Meanwhile Chancellor George Osborne has finally ruled out a "mansion tax" called for by the Liberal Democrats.

The twin moves are likely to prove highly popular with Conservative MPs - particularly on the party right - but will heighten tensions with their coalition partners.

The Lib Dems reacted with dismay when Mr Cameron used the veto to oppose the EU fiscal pact last December, and they have continued to lobby Mr Osborne to adopt their plan for an annual levy on homes worth more than £2 million which they first proposed in opposition.

However Mr Osborne said that he was not prepared to accept a tax which "clobbered" people who had worked hard and saved to buy their home. He told The Mail on Sunday: We are not going to have a mansion tax or a new tax that is a percentage value of people's properties.

"Before the election they will call it a mansion tax, but people will wake up the day after the election and discover suddenly their more modest home has been labelled a mansion. We don't think people who have worked hard, saved up to buy a home, should be clobbered with a mansion tax."

Instead, he said the Government would be extending the council tax freeze for a third year in a row while rises in regulated rail fares would be capped at retail price inflation (RPI) plus 1%.