The chancellor is telling business leaders tonight that Britain's destiny lies in Europe.

But he will warn that the EU must reform if it is to compete in the world.

Taking a break from intensive negotiations with the prime minister and Cabinet colleagues on the euro, Brown will sound a positive but cautious note on Britain's role in Europe.

He is expected to say that Britain is part of Europe "by history, geography and economics" - and can be a leader in the EU.

But he will add that the EU must embrace economic reform if it is to prosper in the new globalised economy.

"I believe that Britain can be a leader in Europe as Europe equips itself for the challenge of globalisation," he will say.

"[However] the new debate about Europe's future is no longer - as it was in the 1980s - how a single trade bloc organises its internal markets independent of the rest of the world, but how all of Europe thinking globally can be outward looking, meet global competition and reform to do so and thus benefit from global change."

Considered to be the Cabinet's leading euro-sceptic, Brown has been keen to paint a more pro-European picture of himself in recent weeks.

He is likely to use his speech to argue that the UK can be positive about the benefits of economic cooperation with Europe as well as the United States without necessarily embracing the euro.

"As Britain and Europe adjust to the global economy I believe we can build a consensus in Britain about Britain's future in Europe as we build a consensus in Europe about how together we equip ourselves for globalisation," he will say.

"Put simply, a more self-confident Britain and a more self-confident Europe can be an engine for economic and social progress on the global stage - not as a rival to the USA and other trade blocs but as a partner - proof of the view that economic success and social justice can advance together."

Having been cross-examined on his single currency assessment documents during the day, Brown will not be given an easy ride at the dinner.

The chancellor will hear a warning that reform of public services is proceeding at "a snail's pace".

CBI chief Sir John Egan will say that business is behind government plans but express fears that extra funds allocated by the Treasury are not being spent wisely.

The business chief will say that changes are being slowed by political dogma within trade unions.

"Business recognises that years of under-investment in public services have to be overcome before we can really make progress," he will argue.

"Nonetheless, our assessment so far is there hasn't been enough to show for the funds being spent on our behalf.

"From transport to health services and local government, we are not getting bang for our heard-earned bucks.

"There is little sign of change on the ground. Public institutions are hamstrung by organisational inability to spend effectively, most strikingly on transport.

"Worse, the debate on using the private sector is bogged down in an internal family row in the Labour movement - even minor changes get branded as sinister privatisation plots."

The speech will embarrass the chancellor, who has pledged that extra investment will be matched by reforms designed to ensure the cash is spent effectively.

Brown will hear Sir John say it is time to stop defending systems that have "clearly failed".

"The refusal of some unions to accept change and support reform will not protect the services they claim to cherish, but contribute directly to their decline," Sir John will warn.

Downing Street has already dismissed Sir John's criticism.

"The government does not accept his analysis. There have been real changes in our public services since 1997," said a spokesman for the prime minister.

"We will not pretend that everything is perfect, nor should others pretend that everything is broke."