Theresa May has been accused of preparing to trigger a full-scale “trade war” with the European Union amid reports she is ready to pull Britain out of the single market.
In a ratcheting up of the Government’s rhetoric, Chancellor Philip Hammond signalled ministers could slash corporation tax rates if British exporters were faced with new tariff barriers outside the EU.
In an interview with a German newspaper, Mr Hammond said the UK Government would do “whatever we have to” to ensure UK businesses remained competitive if European markets were “closed off” to them.
His intervention came as the Prime Minister prepared to set out her approach to the forthcoming Brexit negotiations in a major speech at London’s Lancaster House on Tuesday.
Downing Street would not be drawn on reports she would announce plans for a “clean Brexit” – withdrawing from the single market and the European customs union in order to regain control of immigration and end the jurisdiction of the European Court of Justice.
However, a Sunday newspaper quoted a Government source as saying: “She’s gone for the full works. People will know when she said ‘Brexit means Brexit’, she really meant it.”
Brexit Secretary David Davis insisted the Government wanted to forge a “strong new partnership” with the remaining 27 member states.
But at the same time, Mr Hammond made clear they were ready to get tough if they could not agree a reciprocal deal on market access.
Asked by the Welt am Sonntag newspaper if the UK’s future was as the corporate “tax haven of Europe”, the Chancellor said ministers were ready to change if they had to.
“If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term,” he said.
“In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do.
“The British people are not going to lie down and say, too bad, we’ve been wounded. We will change our model, and we will come back, and we will be competitively engaged.”
Labour leader Jeremy Corbyn said the Prime Minister was pursuing an “extremely risky” negotiating strategy which could hit exports hard.
“It seems to me a recipe for some kind of trade war with Europe in the future.
“That doesn’t really seem to me a very sensible way forward,” he said.
“She appears to be heading us in the direction of a bargain basement economy on the shores of Europe where we have low levels of corporate taxation, we will lose access to half our export market.”