Cabinet ministers have been given detailed warnings that the UK pulling out of the EU customs union could lead to a 4.5% fall in GDP by 2030 and the clogging up of trade through Britain’s ports.

The predictions were contained in a paper circulated at a meeting of Theresa May’s special Brexit cabinet committee, which concluded that ministers were not yet prepared to decide whether the UK should withdraw from the EU’s free trade bloc.

What is the customs union? The European Union is a customs union. It allows free trade between countries inside it and allows imports in to the area by setting common tariffs. The area does not just include EU members. For instance, Turkey is part of the customs union for manufactured goods but not services or agriculture. The single market involves deeper integration of free movement of people, goods, services and money. This means laws need to be aligned. Some countries have access to the single market without being members of the EU’s customs union.

The 4.5% cut is the average prediction made in three studies that were carried out before Britain’s EU referendum, in a move that could anger Brexit supporting MPs who believe that the old estimates are out of date.

The studies, by the Treasury, the thinktank NIESR and the Centre for Economic Performance and London School of Economics, predicted the effect on the British economy if the UK was to opt for a Norway-style model. That would involve remaining inside the single market but outside the customs union, within which countries set common external tariffs and so do not require customs checks.

Although the international trade secretary, Liam Fox, called for the UK’s withdrawal at the meeting, the prime minister was said to repeatedly stress that she was not ready to make any final decisions on the UK’s negotiating position.

The chancellor, Philip Hammond, said – according to one well placed source – that while Brexit would require “political choices”, there would also be economic consequences that had to be considered.

The paper on the customs union also warned that to stand still in trade terms after a withdrawal from the bloc, the UK would need to grow trade with its 10 largest partners outside the EU by 37% by 2030.

City minister Simon Kirby was asked directly by a Lords sub committee if Kirby could rule out staying in the single market or customs union, and he declined to do so. “We are definitely leaving the EU. But otherwise we do not rule anything or anything out,” he said.

Kirby, who co-owned a chain of restaurants and pubs, also said businesses had to take some responsibility for handling the risks of Brexit.

“I am a businessman and business is all about managing uncertainty,” he said. “As much as we’d all like to know exactly what the future brings, business make money analysing their risks and preparing contingency plans and preparing the best possible decision for their shareholders or owners. I don’t think you can, in any environment, remove uncertainty.”

Kirby said currency fluctuations should be expected as the negotiation progressed. “Whatever the exchange rate, it has an impact on some people positively and some people negatively but we do not seek, from government perspective, to influence and we fully expect markets to see a movement as we proceed down the road.”

The customs union paper was one of three documents presented to ministers during the cabinet meeting. The second discussed options for the UK’s immigration policy after Brexit while the third examined the consequences of the country becoming directly subject to World Trade Organisation rules.

Ministers were also warned that some ports, including Dover and Holyhead, which handle a lot of road freight, could be seriously clogged up if there were customs checks on vehicles transporting goods.

The document said that extra infrastructure required, likely to include dozens of parking spaces for lorries undergoing checks, could not physically be built in Dover because of its cliffs.

Jonathan Roberts, head of communications at the UK Chamber of Shipping, told the Guardian that removal of customs controls in 1992 “stimulated huge growth” of trade between Britain and its EU neighbours.

He added: “£120bn of goods is transported on ferries to and from Dover alone every year, and the re-imposition of significant customs checks would cause profound traffic problems near ports and could ultimately cause a reduction in trade volumes.”

However, Roberts argued that the fact that Europe exported more to the UK than imported from it meant there was a strong incentive for EU to offer Britain a reasonable deal even following an exit. “Whether in or out of the customs union, British negotiators should treat the maintenance of unimpeded movement of trade as non-negotiable,” he said.

James Hookham, of the Freight Transport Association, said there would be a “profound” impact if there is a sudden exit from the customs union as over half of Britain’s exports go to the EU. He urged Fox to talk to the individuals involved in the process so he understood any “unintended consequences”.

Others highlighted the UK-Irish border, which is effectively invisible, warning that it would be a complex issue to tackle if it had to become a new point for customs checks.

Charles Grant, director of the Centre for European Reform, said that Irish officials feared that the return of customs posts would provoke terrorist attacks. “The British and Irish governments would certainly do everything possible to minimise physical customs checks on the border – perhaps through the use of advanced technology, or simply through checking lorries at towns near the border, rather than at the border itself,” he said.

May is under significant pressure from her own party to deliver Brexit following the vote in June, with many leave campaigners wanting to see a hard break with the EU in which the UK would leave both the customs union and single market.

But she is also being challenged by backbenchers who want an open relationship with the EU. One of them, Nick Herbert, told the Guardian that the 37% figure obtained by the Guardian underlined the “painful economic cost if we allow ideology to dictate the terms”.

“Banking on such a huge increase in non-EU trade in current global economic conditions would be a massive gamble that could leave us all worse off,” he said. “This is exactly why we need a proper debate on the choices so that we can drive a sensible Brexit deal for Britain.”

However, David Davis, the Brexit secretary, and Fox were said to have accused officials of drawing up a deeply “pessimistic paper” that assumed no mitigating factors. The trade secretary told cabinet colleagues that he had received assurances from non EU countries that they would allow the UK would be able to continue trading with them on the same conditions until new agreements had been drawn up.

Downing Street said they would not comment on the paper, nor give a running commentary on Brexit negotiations.

The cabinet is grappling with how to approach Brexit at a time when there is growing pressure on for the government to spell out its next steps. After a fortnight in which the pound had fallen amid growing expectations of a “hard” Brexit that focuses on controlling immigration, sterling rallied when a court heard that parliament was “very likely” to be asked to ratify any what ever treaty agreement is ultimately struck with the EU.

Details of parliament’s potential role emerged during the third day of a legal challenge over whether ministers or MPs have the power to give formal notification to Brussels that Britain is withdrawing under article 50 of the treaty on the European Union. Pressed by the lord chief justice on whether any agreement with the EU would eventually be subject to approval by parliament, James Eadie QC, for the government, confirmed that it was likely.

He added: “It is ultimately dependent upon the agreement of the parties to the treaty, whether they want it to be subject to ratification or not. But as I say, the view within government is that it is very likely that this treaty will be subject to ratification process in the usual way. Most of them are. It is a pretty rare event for the things to take effect immediately upon accession.”

That opinion was seized on by City traders as a sign that MPs might be able to prevent a hard Brexit, pushing the pound’s value up at one stage to $1.23 – a rise of almost 1%. Compared with its rate of $1.46 prior to the Brexit referendum, however, it was a small recovery.















