Philip Hammond has warned failing to secure a Brexit deal would be “very, very bad” for Britain ahead of the start of exit talks in Brussels on Monday.
The British Chancellor insisted there must be transitional arrangements to avoid a “cliff edge”, and he indicated temporary measures could be in place for a couple of years before a final deal is sealed.
Brexit Secretary David Davis is heading to Brussels for a one-day meeting with its chief negotiator Michel Barnier to start formal negotiations.
British Prime Minister Theresa May has repeatedly insisted the British Government is prepared to walk away from the talks, claiming no deal is better than a bad deal.
Mr Hammond’s warnings over Brexit were seized on by critics, with shadow chancellor John McDonnell claiming the Government is in “disarray”.
The Chancellor told BBC One’s Andrew Marr Show: “What we put in place may not be a single arrangement that endures forever, it may be an arrangement which lasts for a couple of years as a temporary measure before we get to the long-term agreed status quo.
“We’re leaving the EU and because we are leaving the EU, we will be leaving the single market and by the way, we will be leaving the customs union.
“The question is not whether we are leaving the customs union. The question is what do we put in its place in order to deliver the objectives the Prime Minister set out in her Lancaster House speech of having no hard land border in Ireland and enabling British goods to flow freely backwards and forwards across the border with the European Union?
“It’s a statement of common sense that if we are going to radically change the way we work together, we need to get there via a slope, not a cliff edge.”
Mr Hammond said he would not agree to a deal that would “destroy” Britain.
“No deal would be a very, very bad outcome for Britain, but there is a possible worse outcome and that is a deal that is deliberately structured to suck the lifeblood out of our economy over a period of time.”
Commons leader Andrea Leadsom, a leading Brexit supporter, said she believes the two-year timetable can be met.
She told BBC One’s Sunday Politics: “Where you have politicians right across the EU and the United Kingdom who share the desire for a successful outcome, with low tariffs, zero non-tariff barriers, free trade between ourselves, co-operation on security and so on, it should be perfectly possible to meet the time frame.”
Asked if that meant no transitional arrangements, she replied: i”Well, I’m extremely optimistic that we will find there is a lot we can agree on.”
Mr McDonnell told Sophy Ridge on Sunday: “Well I’m afraid the problem with the Brexit talks is that we have a Government in disarray.
“I do not know which particular line of approach is being made by the Government because they are in complete division, so I think actually removing this Government and allowing a Labour government, if necessary a minority government, to come into place would give us clear direction on all of this.”
Liberal Democrat Treasury spokesman Vince Cable said: “The Chancellor stated that British exporters need arrangements as close as possible to the ones they currently enjoy. And he is right.
“As David Davis boards the plane to negotiate Brexit on behalf of the Government, it is unclear what the Government’s position actually is.
“There is a growing consensus across the parties, in business and amongst the public, that an extreme ‘hard’ Brexit of the kind put forward by Theresa May at Lancaster House is no longer politically viable and would be economically disastrous.
“The Chancellor’s position would be untenable if his economic advice is not listened to by the rest of the Cabinet.”