David Davis’s claim in a leaked letter to the prime minister that the EU is discriminating against the UK and damaging its economic interests by preparing for a no-deal scenario in March 2019 has been met with flat denials and accusations of hypocrisy in Brussels.



The European commission’s chief spokesman, Margaritis Schinas, expressed surprise at the Brexit secretary’s claims and insisted it was only natural for the bloc to prepare for a situation threatened repeatedly by Downing Street.

It had emerged via a letter obtained by the Financial Times that the government has taken advice on the legality of EU warnings to businesses that Britain would be treated as a “third country” after March 2019.

Davis claimed that the EU’s warnings could jeopardise existing contracts or even force British companies to move to the continent.

By treating the UK differently from other member states before it leaves the bloc, Davis suggested the EU had been acting “in a way which is frequently damaging to UK interests”.

He said he would be seeking a withdrawal of warnings to businesses that did not make it clear that there would be a transition period and that the UK was seeking a new trading relationship.

In response, however, Schinas told reporters in Brussels that they had merely been taking the prime minister’s warning that Britain was willing to walk away without a deal at face value. “Here in the European commission we are somehow surprised that the UK is surprised that we are preparing for a scenario announced by the UK government itself”, he said.

Quick Guide What are Brexit options now? Four scenarios Show Staying in the single market and customs union The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election. The Norway model Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules. The Canada deal A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far. No deal Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organization rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish bilateral agreements to deal with the consequences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

“After all, it was PM May herself who said in her Lancaster House speech in January 2017 and repeated in her Florence speech in September that, and I quote: ‘No deal is better than a bad deal for Britain. It is right that the government should prepare for every eventuality’.

“We take these words from the prime minister very seriously. It is therefore only natural that in this house we also prepare for every eventuality.”

Asked whether, the commission recognised the allegations of discrimination and would be retracting warnings to businesses, the official added: “No.”.

The row came ahead of a speech by the EU’s chief negotiator, Michel Barnier, to business leaders in Brussels and the Belgian prime minister, Charles Michel, in which he reiterated that Theresa May’s decision to leave the single market, customs union and jurisdiction of the European court of Justice would strictly limit how generous the 27 member states could be in negotiating a future relationship.

A continuation of the status quo for financial service providers in the UK, in particular, to operate across the EU would not be possible he said, but across the board companies needed to understand that changes would be coming.

Barnier said: “A trade relationship with a country that does not belong to the European Union necessarily involves friction...

“It is therefore important that each company lucidly analyses its exposure in the United Kingdom and is ready to adapt its logistics circuits, supply chain and contractual terms, including in the area of financial services.”

The European parliament’s Brexit coordinator, Guy Verhofstadt, told the Guardian that it was the UK government that was guilty of damaging the UK’s economic interests. He defended the bloc’s right to prepare for the worst-case scenario.



Verhofstadt said: “Businesses’ uncertainty has been created, on both sides of the channel, because of the UK government’s decision to check out of the largest single market in the global economy, not because of the EU’s contingency planning.

“From the very beginning both prime minister May and David Davis have repeatedly stated that no deal is better than a bad deal, so everybody must understand that it is only fair that we plan for this threat.”

In his letter, Davis had conceded that the advice from government lawyers is that any move to challenge the European commission in the courts on its warnings to businesses would be “high risk” but he added that the UK “cannot let these actions go unchallenged”.

Zsolt Darvas, a senior fellow at the Bruegel thinktank in Brussels, said he could see no issue with warnings to businesses, but that the UK government could have a case where British companies were not given contracts on EU programmes, such as the €10bn (£8.8bn) satellite programme Galileo, due to the uncertainty.

Last year, it emerged that the European commission was demanding the right to cancel contracts without penalty if a supplier was no longer based in an EU member state, creating potential uncertainty for both British businesses and officials in charge of commissioning.

Darvas, an expert in EU governance and finance, said: “That could be some form of discrimination. But we have to emphasise that this is comparatively a small amount of money. The UK can do the most to prevent discrimination. The UK needs to come forward with details of what sort of transition period it wants.”