Lord Mandelson has said the Prime Minister should "bite the bullet" and meet the EU’s demands for a settlement payment, describing the proposed £52bn payment as "small change."

"Britain is not one of those countries that doesn't pay its bills, for good reason not least the impact it would have on the markets and market confidence in our future debt-raising,” he told an audience at the Institute for Government.

Lord Mandelson said “eventually” the terms of a new free trade deal could be discussed alongside the exit settlement, but not at the start.

He said, a former EU Trade Commissioner, said the Prime Minister faces a choice between “economic reality and political intransigence”, former EU Trade Commissioner Lord Mandelson has said, as he warned her that, “shooting yourself in both feet is not a clever negotiating strategy.”

Lord Mandelson said Theresa May must not give in to the “wild men” in the Conservative Party, who appear to be actively agitating for the country to leave the European Union with no deal on trade at all.

“The Prime Minister has made two pivotal decisions which will determine the shape of Brexit,” he told an audience at the Institute for Government.

“First, to leave the Single Market to pursue a Free Trade Agreement completely outside the EU. This will add time, complexity and risk to the negotiation.

“Second, her negotiating strategy is framed by a series of red lines which, on the face of it, will severely restrict her negotiating flexibility.

“We know where these red lines have come from and the PM will face a choice: between the trade deal essential for the economy and the right wing of her party who want Brexit at any cost.”

The remarks represent a slight change in tack from Open Britain, who organised the event and are in essence the continuation of the Remain campaign. In urging the Prime Minister to stand up to the right wing of her own party, the only direction from which she is currently feeling any political pressure at all, the implication is that she will receive support from Remainers if she does so.

Lord Mandelson said had Theresa May kept open the possibility of continued single market membership the UK would have been the beneficiary of far greater goodwill on the EU’s part. But he also said the draft negotiating guidelines published by the EU, which appear to offer a route towards a comprehensive trade deal, were “an olive branch.”