Britain will still have to pay the EU up to £36 billion if it fails to agree a trade deal, Philip Hammond has claimed, as Brussels said no deal is now “more likely than ever”.

The Chancellor told Cabinet ministers the UK would be unlikely to win any legal battle to withhold large chunks of the Brexit bill, despite previous Government promises that the payment was conditional on a deal.

Mr Hammond’s comments angered Eurosceptics, who described his stance as “mystifying”. However, sources close to the Chancellor insisted he was as frustrated as his colleagues with the EU’s intransigence, and was merely setting out legal advice the Treasury had been given.

It came as Theresa May was told to bring “new facts” to the negotiating table if she wants to make any progress when she attends a summit of EU leaders in Brussels on Wednesday.

She has already made it clear that she is not prepared to budge over the Irish border question, which has left talks deadlocked, meaning a crucial Brexit summit next month is likely to be cancelled.