David Cameron's Eurosceptic headache continues as one of his campaign chiefs warns the Conservatives may need to form a pact with the UK Independence Party.

Farage and Cameron (Reuters)

Michael Fabricant, a party vice chairman in charge of parliamentary campaigning, reported to the prime minister that he should consider a "rapprochement" with Ukip to stem the "continued haemorrhage of Conservative votes".

He said in his report: "It is time to consider actively whether a rapprochement might be possible before the 2015 general election. The basis of any deal is clear - a referendum on the United Kingdom's future membership of the European Union."

No deal with the Tories; it's war - Ukip leader Nigel Farage

Mr Fabricant said that though Ukip does not pose any threat to claiming any parliamentary seats, the effect on the Conservative party is greater.

He said that the 3 to 4 per cent that Ukip polled in the 2010 general election cost victory for the Conservatives in 20 to 40 seats, which was "a major contributory factor to the Conservatives failing to win an overall majority".

"Real support"

He also pointed to the recent by-election in Corby, where Ukip polled 14.3 per cent of the vote, as Labour took back the seat from the Conservatives; a signal of the "real support that Ukip can harness".

He said: "With a Ukip leader in Nigel Farage, who is a former Thatcherite, who sounds like a Conservative, who looks like a Conservative, and in other circumstances probably would be a Conservative, some of the arguments being advanced here do have real relevance and must be addressed."

Mr Fabricant also said the Conservatives should conduct private polling to clarify how much of the marked increase in Ukip support was due to defections of previous Tory supporters, though added it would probably make "disturbing reading".

He added that such a deal would not be popular with coalition partners, and as such the timing of such a deal would be important.

The warning comes ahead of Mr Cameron addressing MPs later to report on the failure of EU members to agree a deal on the EU budget. He is spearheading a campaign against increasing the budget, and is facing a growing swell of Eurosceptic sentiment from his own backbenchers.

"Closet racists"

However, frosty relations between the prime minister and Nigel Farage's party have re-emerged following the row over Rotherham council's decision to remove foster children from a family after discovering they were members of Ukip.

Mr Cameron has previously refered to Ukip as a party of "closet racists", and on the weekend confusion remained over whether he still held these beliefs.

Downing Street told Channel 4 News on Saturday that Mr Cameron no longer thinks the party is one of "closet racists" - but then rang back to say they don't retract the prime minister's original statement.

Mr Farage said on Twitter on Sunday night that a deal with the Conservatives was "simply not possible". This morning he added that it seemed to be an attempt to "buy me off".

Mr Cameron has resisted backbench demands for an in/out referendum on Europe, but has signalled he is ready to hold a referendum on the EU more generally. Yesterday he was backed in this view by the Mayor of London, Boris Johnson, who said a referendum could not be narrowed to "such a simple question".