Labour’s divisions over Brexit are exposed today as an alliance of more than 80 senior figures from across the party warn Jeremy Corbyn that he will be unable to fund his promised investment in schools, hospitals and social care unless the UK stays in the EU single market.

In a statement issued exclusively to the Observer on the eve of a keynote Brexit speech by Corbyn, the group of MPs, MEPs, council leaders, peers and trade unionists say the pursuit of social justice and a leftwing anti-austerity agenda depends on avoiding the “multibillion-pound hit to the public finances that leaving the single market would entail”.

The timing of the statement, signed by 37 MPs and a dozen peers, including Helena Kennedy and Doreen Lawrence, will infuriate Corbyn as he prepares to announce a significant shift in policy tomorrow that is expected to commit Labour to backing permanent membership of a customs union with the EU.

His speech will open a far clearer divide between Labour and the Tories over Brexit and raises the possibility that the party’s MPs could join forces with pro-EU Tories, the SNP and the Liberal Democrats to inflict damaging defeats on Theresa May in a series of Commons votes in the spring.

But signatories to the statement, co-ordinated by the Labour Campaign for the Single Market, up the ante by saying that while the customs union shift is a step forward, it falls way short of where the party should be on Brexit. They argue that if Corbyn were to back single market membership too, he could deliver a parliamentary vote in favour of staying in, thereby safeguarding the country’s economic future and allowing his plans for boosting spending on public services to go ahead.

“Given the parliamentary arithmetic and the numbers of parliamentarians from other parties – including Conservative backbenchers – who have indicated they will join us in this endeavour, our country’s continued participation in a customs union and the single market is now in the Labour party’s hands,” they say.

They add: “We can only properly fund services, schools, hospitals, social care and international development if our businesses thrive and our economy grows.

“And, if we want to build a modern, low-carbon economy that protects workers and tackles tax avoidance, we will only achieve it through collaboration and frictionless trade with our nearest neighbours.

“So – as a minimum – Labour must clearly and unambiguously set as a negotiating objective the goal of remaining part of the European economic area, in order to participate on a permanent basis in the single market. Other non-EU countries are in the European economic area, the EU has said this option is available to us, and it is the only way we can continue to enjoy the exact same economic benefits of our existing arrangements if Brexit happens. Theresa May has ruled this out – the vast majority of those who voted for us last year did so in the belief that we would do all we can to oppose this.”

Lord Chris Patten has called Theresa May’s Brexit policy into question. Photograph: Murdo Macleod/The Guardian

The signatories include several Labour council leaders, including Nick Forbes of Newcastle City Council and overall leader of Labour in local government. The peers and former trade union leaders Bill Morris and Tony Young have also signed.

This Friday May will deliver what will be her third keynote speech on Brexit, after holding a special meeting of the cabinet in the north-east of England.

Last night her Brexit policy was called into question by former Tory party chairman and ex-European commissioner Lord Chris Patten, who dismissed the idea that the UK could replace the benefits of single market membership with a series of global trade deals, as entirely unrealistic.

Speaking to the Observer, Patten said: “All this business about Walter Raleigh and global Britain is pretty much for the birds.”

He added that the UK already had access to global markets through more than 60 trade deals that the EU has struck across the world. He also cast doubt on May’s ability to find a deal that satisfied both the EU and the hardline eurosceptics. “It would be a triumph of diplomacy as great as the Convention of Vienna to accomplish that but we wish the prime minister well.. It is an extraordinary circle to try to square.”

Meanwhile, writing in this paper, Carolyn Fairbairn, director general of the Confederation of British Industry, piles further pressure on May, insisting that British business will require a considerable period of extra time to adjust to any immigration system that replaces EU free movement.

The CBI believes that current rules on free movement may, therefore, have to apply even beyond the two-year transition deal that is due to end in 2021 not to suffer from shortages of workers. Fairbairn also says that if the government attempts to impose the same immigration rules on EU workers that current apply to workers from outside the EU the result will be disastrous. She warns: “Any idea of copying and pasting the non-EU visa system for EU nationals should be ruled out. It would be disastrous for the economy, hitting smaller companies hardest.”