Philip Hammond, the foreign secretary, has set the stage for a showdown with a new group of Eurosceptic Tory MPs by dismissing their central demand to assert the supremacy of parliament over the EU.

As the Labour leadership contender Liz Kendall accused David Cameron of showing a profound lack of leadership over the EU, the foreign secretary said it would be impossible to give parliament a unilateral veto over EU laws.

Hammond spoke out after a new group of Tory MPs, Conservatives for Britain, said they would campaign for a no vote in the EU referendum unless parliament was able to assert its supremacy over the EU. This would mean repealing the legislation that paved the way for the UK to join the EEC in 1973, which asserts the primacy of EU law.

The foreign secretary said the demand tabled by the 50-strong Tory group would be impossible to meet. He told the Andrew Marr Show on BBC1: “If you were talking about the House of Commons having a unilateral red card veto – that is not achievable, that’s not negotiable, because that would effectively be the end of the EU. What we are looking for is a system where a group of national parliaments could operate a red card.”

The intervention by Hammond, who said Britain’s EU membership was “fixable” in the prime minister’s planned renegotiations, suggests that ministers are prepared to confront hardline Tory Eurosceptics.

Hammond also indicated that ministers are prepared to face down the Eurosceptics who are expected to register their anger on Tuesday, when MPs vote for the first time on the parliamentary bill paving the way for an EU referendum, over plans to relax rules on government spending. Eurosceptics are angry after the government decided that Whitehall purdah rules, which would normally prevent the government machinery from publishing information in an election period, would not apply during the referendum campaign. The decision, which would allow civil servants to publish information on behalf of the government during the campaign, has been criticised by the Electoral Commission.

Conservatives for Britain launched their campaign on Sunday with a warning that they would campaign for a no vote unless the prime minister toughened his negotiating stance. They indicated they would like to repeal the European Communities Act of 1972, which asserts the primacy of EU law.

Steve Baker, the Conservative MP for Wycombe, wrote in a Sunday Telegraph article: “We need a parliament which can decide the level of British taxpayers’ contributions to the EU, what regulations should apply to our businesses, how to control EU migration, and our trade relations with the rest of the world.

“In short, we need a sovereign parliament which can answer the demands of our electors. Without this, it seems likely many Conservative MPs will conclude that the best interests of the UK, Europe and the wider world, and the cause of peaceful international co-operation, would be advanced by the UK leaving the European Union to pursue a relationship of peaceful trade and political co-operation among sovereign nations.”

Baker, who said that he expects to attract the support of 100 Tory MPs, wrote in his article that he has “confidence in the government’s capacity to renegotiate our membership of the EU”. But after Hammond dismissed his group’s key demand, Baker suggested that he was prepared to campaign for a no vote.

Baker told The World This Weekend on BBC Radio 4: “Personally I have always expected to campaign to leave because I have read the Lisbon treaty, I understand its direction of travel, it’s clear to me that the European establishment doesn’t mean for us to have a fundamentally different relationship, which is what the prime minister said he wanted. So I have personally expected to leave. But I would just emphasise colleagues in Conservatives for Britain will be making their own decisions.”

Kenneth Clarke, the former chancellor, said of Baker: “He is obviously one of those Conservatives who will vote no come what may. He wants to leave the EU. The demands set out in the Telegraph aren’t desirable in the British interest. They would do great damage to us. They are totally incompatible with being in the EU or even trading with the EU in the European Economic Area. He would take us much further away than [non-EU members] Norway or Switzerland who do accept the rules of the market in which you trade. The idea that 28 national parliaments all decide which rules they adopt or which they don’t means you don’t have a free trade area.”

In his BBC interview, Hammond said the government was confident of succeeding in its attempts to renegotiate Britain’s EU membership terms, and he suggested that ministers would be expected to support the prime minister in the referendum.

Cameron hopes to impose a four-year ban on EU migrants claiming in-work benefits; to give Britain an opt-out from the EU’s commitment to create an ever closer union of the peoples of Europe; to give non-eurozone countries greater protections in the single market; and to give EU countries greater powers to club together to block EU legislation.

Hammond said: “We are clear that the EU isn’t working, as it is, at the moment. It is not fit for the 21st century. But we think it is fixable, that we can get a package of reform that will make it work in Britain’s interests.”

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The foreign secretary said it was important to secure treaty change to protect Britain from “judicial attack” from the European court of justice. He said: “We think we do need treaty change, we think some of the changes – in particular [those] we are demanding around availability of welfare benefits for new migrants from the EU – can only be sustained from judicial attack in the European courts. It is not treaty change for its own sake, it is treaty change in order to protect the real material changes we need to get from judicial attack.”

Hammond defended the decision of ministers to allow the government machinery to support ministers during the referendum campaign. The government has decided that rules in the Political Parties, Elections and Referendums Act of 2000, which restricts official government activity in the final 28 days of a referendum campaign and which applied in the AV and Scottish independence referendums, will not apply during the EU vote.

The foreign secretary said: “The government machine will continue running, Europe will continue running and we will have to engage with it. But the government is clear. It doesn’t want to be neutral on this. We hope to be able to achieve a package that we can recommend to the British people. This is a core manifesto commitment and ministers will want to speak out on the referendum.”

The Electoral Commission criticised the government move on the grounds that it could give ministers an unfair advantage. In a briefing published on its website, the commission says: “We are disappointed and concerned that the bill includes provision to remove the restrictions on the use of public funds by governments and others to promote an outcome right up until voters cast their vote … In the commission’s view, there is a risk that the use of significant amounts of public money for promotional activity could give an unfair advantage to one side of the argument.”

Kendall said the government’s plan to block EU migrants from claiming in-work benefits for four years should be looked at. But she said Britain’s EU membership was more important than any of the demands on Cameron’s EU renegotiations list, and said she would campaign to remain in the EU regardless of the negotiations.

The shadow social care minister told the Andrew Marr Show: “David Cameron has allowed this [in-work benefits ban] to define whether or not Britain remains part of Europe. That is a profound lack of leadership on his behalf because he is more concerned about internal political management than the future of the country. That will not happen if I am leader of the Labour party.”

Andy Burnham, another contender for the Labour leadership, said: “David Cameron will continue to struggle to get the best deal for Britain if his party tears itself apart over Europe. Now that the Tory campaign against EU membership is taking shape, Cameron needs to show that he can deliver reform in Europe or make way for a party that can.”