Philip Hammond is expected to warn his cabinet colleagues that a Canada-style trade deal of the kind championed by Brexiters would hit jobs, trade and growth, when he briefs ministers at Chequers on Friday.

Theresa May is gathering her deeply divided cabinet at her country retreat to thrash out an agreed Brexit negotiating position – which will then be set out in a white paper next week.

Senior Brexiters were already warning of the return of what they call “project fear” after Hammond revealed in the Commons that he would be giving a presentation on the economic implications of the options available.

The chancellor told MPs on Tuesday: “I will be setting out for my colleagues in the privacy of our cabinet meeting on Friday the Treasury’s, indeed cross-Whitehall’s, economics group assessment of the implications of different potential routes forward.”

However, one senior government Brexiter hit back: “It’s clear that the meeting will be a total stitch-up with No 10 and Cabinet Office combining to try and bounce Brexit ministers with more failed predictions from project fear and rejected customs plans.”

Pro-Brexit MPs in the backbench European Research Group have demanded a meeting with May’s chief whip, Julian Smith, on Wednesday morning, to remind him of their objections to the customs partnership.

The ERG’s chair, Jacob Rees-Mogg, hinted earlier this week that he and his allies could vote against the government if May seeks to pursue a soft Brexit - even at risk of forcing her out of power.



Hammond’s briefing is expected to be similar to the cross-Whitehall economic assessment leaked – and ultimately published – in March.

That showed an EEA-style deal would knock 0.6% to 2.6% off GDP growth – while a free trade deal, such as the Canada-style agreement favoured by David Davis, would reduce it by 5% to 10%. The chancellor is likely to be backed up by business secretary Greg Clark, one of the strongest advocates of frictionless trade.

“It’s reassuring to know Philip Hammond has done his homework in advance of the Chequers peace summit,” said Labour shadow Brexit minister Matthew Pennycook. “However, it will ultimately be parliament, not the cabinet, that will sign off on the final deal.”

Leavers are bracing themselves for May, and her chief Brexit negotiator Ollie Robbins, to present them with plans for a significantly softer Brexit than she has previously signalled – including alignment with European Union regulations for the goods sector, to prevent friction at borders.

May is also expected to revive some aspects of her “new customs partnership”, under which the government would impose EU import tariffs – and then refund the difference, if Britain chooses to cut its own duties.

Brexiters regard the customs plan as too bureaucratic – and fear that it would make it unlikely tariffs would ever be cut. They have repeatedly insisted the plan is a “dead parrot”. Environment secretary Michael Gove ripped up one page of it in exasperation at a recent meeting.

May is urging EU leaders to show flexibility in considering her plan when it is published. She travelled to The Hague on Tuesday, to discuss the issue with Dutch prime minister Mark Rutte.

A Downing Street spokesperson said the pair had “discussed the importance of ensuring that trade between the Netherlands and the UK remained as frictionless as possible following the UK’s exit from the EU”. May will also meet with the German chancellor, Angela Merkel, before the Chequers meeting.

Meanwhile, businesses have delivered a fresh warning about the Brexiters’ favoured “max fac” customs plan, which uses technology such as numberplate recognition to minimise trade frictions. The Institute of Directors said its members believed max fac was not practical.

Stephen Martin, the IoD’s director general, said: “As the government discusses options for post-Brexit customs this week, they should take note of the strong preference among business leaders for a solution which keeps trade friction to an absolute minimum.

“Pursuing an option that relies on facilitations and simplifications doesn’t seem to cut it for our members. In short, ‘max fac’ is not the favoured route for keeping trade in full flow.”

Martin added that Britain’s firms “want to see the prime minister leading her cabinet out at the end of this week with an agreed position, and then pushing on with negotiations with the EU”.

Separately, a group of Britain’s leading professional and business services firms wrote to May on Tuesday with a list of requirements they say are essential to preserve the £188bn industry with its 4.6m jobs and “keep the wheels of the British economy turning”.

The 42 signatories from the Professional and Business Services Council (PBSC) – which represents law, accountancy, architecture, surveying and advertising firms – said they needed a number of assurances, including that they will still be able to recruit the best talent from overseas.

“The UK needs to get the right deal on professional and other services given our relative strengths and current competitive position,” they wrote.

The letter praised a speech by Greg Clark – one that raised the hackles of cabinet Brexiters – in which he warned that restricting the ability of British workers to travel within the EU could be as dangerous to the economy as a hard trade border.