The report is the work of a commission, chaired by Tory former Defence Secretary Sir John Nott, set up by Mr Hague earlier this year to make the economic case for keeping the pound.

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The report, released on Wednesday, says that the UK has a very strong economy which has no need to join with the rest of Europe.

"I don't think the British people realise that we are the fourth or fifth largest economy in the world," Sir John said.

Tory leader William Hague set up the commission to make the case for keeping the pound

"It makes us a very powerful country with huge global interests which are far wider than the European Union.

"The conclusion of the report is that it would be folly to give up economic independence at a time when the economy is doing so well."

Sir John's report also argues that falling trade barriers and developments in internet commerce mean large trading blocs like that created by the European single currency are no longer needed.

"People who argue in favour of these large blocs are living in a time warp - these are the things of the 1960s, 70s and 80s," he insisted.

The report also concludes that even if joining the euro were desirable, long-term convergence between the UK's economy and the 11 countries already in the single currency looks to be impossible to achieve.

"We can't really see that sustainable cyclical convergence is likely to come about," Sir John said.

Already countries in the euro-zone were experiencing problems staying within the rules, with Italy being forced to obtain exemptions, he said.

'Fix' accusations denied

Sir John insisted the commission team was "greatly in favour" of staying in the EU and extending the single market.

He rejected criticism that the commission's report had been "fixed" in advance by Mr Hague, who wants the UK to stay out of the euro during this and the next parliament.

Sir John, who served as defence secretary during the Falklands war, left the government in 1983 and said he no longer had any active involvement with the Conservative Party.

"This commission was set up to examine the pound, not to try to 'knock' the euro, and the Conservative Party have had no input into this report whatsoever," he said.

The members of the commission are:

• Sir John Nott, Tory former Cabinet minister;
  
• Ruth Lea, head of policy of the Institute of Directors;
  
• Lord Howell, Tory former energy and transport secretary;
  
• Sir Michael Angus, from the firm Whitbread;
  
• Tim Congdon, professor of economics at the City Business School;
  
• Luke Johnson, director of Pizza Express;
  
• Sir Anthony Bamford, chairman of JCB;
  
• Neil Record, chairman of Record Treasury Management.