William Hague has cast off his reputation as the darling of the Tory right by describing governing with the Liberal Democrats as "wonderfully refreshing". He also rules out a referendum on UK membership of the EU.

The comments by the foreign secretary, in an interview with the Observer, will dismay the many Conservative MPs who resent the Lib Dems' moderating influence on government policy, particularly on relations with Europe, and want their party to champion a more rightwing agenda.

As the Tories gather for their annual conference in Manchester, amid calls from rightwingers for David Cameron to give less ground to their coalition partners, Hague says this administration is working better than the last Tory government in which he served.

"When you sit with David Cameron and Nick Clegg and other senior colleagues examining an issue, it is a wonderfully refreshing, rational discussion, actually, in which you know your party identity is not the first consideration," he says. "The government has a more united spirit than the last government I served in at the end of 18 years of Conservative government."

Hague, formerly a hardline Eurosceptic, insists he has not changed his opinions on the EU, or come under the spell of the pro-EU Foreign Office culture. He still believes the EU has too much power and has never veered from his view that the euro would be a disaster.

But in a sign that life in government has had a profound influence, he also freely points out that in his time as foreign secretary he has seen evidence of the 27-nation bloc operating as a powerful, collective force for good in the world. As a result, he does not believe it would ever be in the UK's interest to think of leaving. Asked if the government might grant a referendum on UK membership of the EU, he says "no", arguing one would be called only to approve or reject further transfers of sovereignty: "Our place is in the European Union."

Hague says that EU procedures can be "cumbersome, slow and bureaucratic", with negotiations taking weeks, as they did over the imposition of sanctions on Syria. "But the upside is when you've negotiated them [the sanctions] 95% of the sales of crude oil are stopped because 27 nations together act on that."

He also cites a trade deal between the EU and South Korea struck last year as another success. "That is a vast economic benefit to the whole of the EU and we want more of those things."

His remarks reflect a wider recognition at the top of the Tory party that its best chance of winning a second term in government is to stay firmly on the centre ground and resist moving to the right. But they will infuriate many grassroots Tories, and young Conservative MPs, who feel that the true Tory message is being compromised.

The issue of Europe is expected to blow up when Tory MPs and activists demand a referendum on whether the UK should quit the EU altogether. They maintain that, as the inner core of "euro" nations moves towards a fiscal union, the UK risks being sucked in further and now is the perfect opportunity to push for a fundamental change in the UK's relations with Brussels or an exit strategy.

It was reported last night that the Commons backbench business committee will agree to grant a one-day debate in parliament on a referendum of Britain's membership of the EU, after a petition signed by more than 100,000 people was submitted to MPs. Mark Pritchard, Eurosceptic secretary of the 1922 committee of Tory backbenchers, said that Europe would be a huge issue at conference: "Europe is back as an issue, that is my message."

The battle of ideas in the party will be stepped up with the publication of The Future of Conservatism, co-edited by former Tory minister and leadership contender David Davis. In it, MPs both young and more experienced float a range of radical ideas.

Steve Baker, from the 2010 intake, calls for the road network to be privatised, a system of road pricing to be introduced, and for the new north-south HS2 high-speed rail line and the London Crossrail schemes to be cancelled. Rightwing former cabinet minister John Redwood says that taxes for both high and low earners should be cut.

Another new alliance of Conservative MPs backing greater moves towards free enterprise and deregulation will be launched on Monday.

Hague says it is "very important" for the Tories to remain on the centre ground, particularly, he claims, because Labour under Ed Miliband appears to be "vacating" that territory.

With the coalition under increasing pressure to change economic policy in order to promote growth and employment, Cameron will announce plans to boost housebuilding by forcing government departments to sell vacant land to developers.

The plan, he will claim, will allow for the building of around 100,000 homes and support as many as 200,000 jobs by 2015. Construction companies will receive special assistance as they will only have to pay for the land when they have sold the homes.

"The government owns huge amounts of land, mostly brownfield sites, previously developed, either out of use or being run down in some way," Cameron told a Sunday newspaper. "There's an enormous opportunity to build homes on those sites. I want people to have the chance to own their own home. This is a creative way of getting those homes built."

In his keynote speech, George Osborne is expected to play down the prospects of big tax cuts before the next general election.After Ed Miliband's conference speech received a mixed reception at Labour's gathering in Liverpool last week, Hague, who himself endured a traumatic period as Tory leader between 1997 and 2001, said that on a personal level he felt sorry for the Labour leader.

"But I have not got a lot of political sympathy," he said. "He has been dealt a much better card. The world was largely peaceful, the economy was growing of its own accord and they [Labour] rode on the back of all that. So Ed Miliband doesn't have as many excuses as I had … I might put it that way."