Hammond hints at tax cuts to keep UK firms competitive after Brexit

The British Government will do "whatever we have to" to ensure Britain stays competitive if it is shut out of the EU single market after Brexit, Chancellor Philip Hammond has warned.

As Theresa May prepared to lay out her approach to the Brexit negotiations in a keynote speech on Tuesday, Mr Hammond hinted the Government was ready to push through aggressive cuts to business taxes to ensure UK-based firms remained competitive in the face of EU tariffs.

In an interview with the German Welt am Sonntag newspaper, the Chancellor said while he was "optimistic" a reciprocal deal on market access could be struck, he was not going to "lie down" and accept it if it was "closed off".

"I personally hope we will be able to remain in the mainstream of European economic and social thinking. But if we are forced to be something different, then we will have to become something different," he said.

"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."

"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."

His comments came amid fresh reports Mrs May is preparing to set out plans for a "hard Brexit" when she delivers her speech at Lancaster House - pulling out of the single market and the customs union in order to regain control of immigration and end the jurisdiction of the European Court of Justice.

While Downing Street would not be drawn on the claims, The Sunday Telegraph 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."

The comments alarmed pro-Remain MPs. Former education secretary Nicky Morgan, who was sacked by Mrs May, said the Prime Minister should put "maximum participation" in the single market at the heart of her negotiating strategy and warned her not to do anything to damage the economy.

"The Government will be doing a disservice to the country and to both Leave and Remain voters if it dogmatically pursues a hard, destructive Brexit where immigration control is the be all and end all, our economy is undermined, and people are left poorer," she said.

Writing in The Sunday Times, Brexit Secretary David Davis said the Government would be seeking to forge a "strong new partnership" with the remaining 27 member states.

"We don't want the EU to fail, we want it to prosper politically and economically, and we need to persuade our allies that a strong new partnership with the UK will help the EU to do that," he wrote.

He also indicated that the Government would consider some form of transitional arrangement - a move likely to be regarded with suspicion by hardline Brexiteers who have been demanding a clean break.

"If it proves necessary, we have said we will consider time for implementation of the new arrangements," he said.

One of the themes of Mrs May's speech is expected to be the need to foster unity by building "common goals" - such as protecting and enhancing workers' rights - in an attempt to create a consensus after months of acrimonious exchanges.

Most attention, however, will inevitably be centred on her approach to key issues around the single market, the customs union and free movement of labour.

It is unclear however how much detail the Prime Minister will be prepared to reveal at this stage, having repeatedly stressed that she is not going to undermine her negotiating position by giving away too much too soon.