Britain’s chief Brexit negotiator, David Frost, has signalled to his EU counterpart, Michel Barnier, that he will recommend Britain leaves without a trade deal if Brussels continues to demand that the UK should align with its rules on state aid. Mr Frost has already taken a hard stance on the topic in private meetings.
Mr Barnier demanded to see Britain’s blueprint for its domestic subsidy regime for when the Brexit transition period is over.
The regime is not likely to be published until the end of September.
The EU wants Britain to continue to follow rules that prevent the Government from subsidising British companies over EU rivals.
A senior Conservative source said Mr Frost and others had privately talked about whether to soften Britain’s line on state aid.
But Prime Minister Boris Johnson reportedly decided that the UK should not soften its position.
The source told the Times: “Frost has made clear to Barnier that as things stand he would have to recommend to Boris that we go for no deal.
“There has been a discussion about whether or not to compromise on state aid, and Boris said no.”
Mr Johnson’s senior aide, Dominic Cummings, thinks that freedom on state aid could be one of Brexit’s main benefits.
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“He’s telling Boris that he shouldn’t do anything that undermines the Union.
“The argument is that if Brexit leads to the breakup of the UK, that would give Boris’s achievement in securing Brexit a bad name.”
Mr Barnier has argued that the UK’s proximity to the EU means it should not be allowed to create a competitive advantage over key industries.
Next week informal talks will resume between the UK and EU before formal negotiations commence the following week.
A no deal scenario is much more likely to happen than it was a month ago during negotiations.
The EU does not think a deal will be agreed on before the European Council meeting takes place on 15-16 October.
The two sides are deciding whether there should be a separate Brexit leaders’ summit or “legal vehicle” to extend negotiations past the end of December.
But Mr Johnson is unlikely to delay the UK’s exit from the EU.
A Government spokesman said: “After the transition period, the UK will have its own regime of subsidy control and will not be subject to the EU’s state aid regime.
“The government will set out further detail of our domestic regime in due course.”