Britain will remain subject to the rulings of the European Court of Justice during a transitional period lasting around two years after Brexit, Prime Minister Theresa May has told MPs.

And she did not rule out accepting any new regulations imposed by Brussels in the two years after March 2019, even though the UK would have no say in drawing them up.

The admissions came as the UK and Brussels remained at loggerheads over Brexit, with each side insisting that the onus was on the other to make concessions ahead of a crunch summit next week.

The European Commission’s chief spokesman flatly dismissed Mrs May’s suggestion that compromises offered in her high-profile speech in Florence last month meant it was now time for Brussels to show “flexibility” and allow discussions on the future UK-EU trade relationship to begin after the October 19-20 European Council summit.

As the fifth round of formal Brexit talks got under way in Brussels, Margaritis Schinas told reporters that “the ball is entirely in the UK court” to reach agreement on Britain’s “divorce deal”, without which the EU has said it will not move on to the second phase of talks, involving trade.

But just hours later, the Prime Minister rejected the Commission’s stance, putting a heavy stress on the word “is” as she told MPs in the House of Commons: “As we look forward to the next stage, the ball is in their court.”

(PA graphic)

Mrs May told MPs there was a “new dynamic” in negotiations since her Florence speech, in which she accepted that the UK would pay billions to fill gaps left in the EU budget left by its departure and would continue to observe EU rules during a transition lasting about two years after Brexit.

But Mr Schinas said: “There is a clear sequencing to these talks. There has been so far no solution found on step one, which is the divorce proceedings, so the ball is entirely in the UK court for the rest to happen.”

After her statement to the House of Commons, Mrs May was challenged by Eurosceptic Tory backbencher Jacob Rees-Mogg to confirm “unequivocally” that the ECJ’s writ “will no longer run in any way in this country” following the expected date of Brexit on March 29 2019.

Labour leader Jeremy Corbyn accused the Government of making no progress in the 16 months since the referendum (PA)

She responded that the need to ensure a smooth and orderly withdrawal, with the minimum of disruption “may mean that we will start off with the ECJ still governing the rules we’re part of for that period”.

She said it was “highly unlikely” any new EU laws would come into operation during the transition, but did not rule out the possibility that any which did so would have effect in Britain.

Anti-Brexit protesters waved EU flags outside the Houses of Parliament as the Prime Minister updated MPs on the Brexit negotiations (Yui Mok/PA)

At next week’s summit, the leaders of the 27 remaining EU states will decide whether sufficient progress has been made on divorce issues like expats’ rights, the border with Ireland and Britain’s financial settlement to allow talks to proceed to their second phase.

Failure to secure agreement would heighten pressure on the PM, with City figures suggesting that businesses may start taking decisions to move staff and activities out of the UK if no movement is achieved before Christmas.

In her statement to MPs, Mrs May insisted that “real tangible progress” was being made, but added that “flexibility” was needed from the other EU states.

The PM says Brexit Secretary David Davis has made “real and tangible progress on a number of vital areas” (Stefan Rousseau/PA)

“A new deep and special partnership between a sovereign United Kingdom and a strong and successful European Union is our ambition and our offer to our European friends,” said the PM.

“Achieving that partnership will require leadership and flexibility, not just from us but from our friends, the 27 nations of the EU.

“And as we look forward to the next stage, the ball is in their court, but I’m optimistic it will receive a positive response, because what we are seeking is not just the best possible deal for us, but I believe that will also be the best possible deal for our friends too.”

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Labour leader Jeremy Corbyn retorted: “Sixteen months on from the referendum, no real progress has been made.”

Mrs May unveiled two new policy papers on post-Brexit trade and customs arrangements which she said would pave the way for Britain to operate as an “independent trading nation”, even if no trade deal is reached with Brussels.

The white paper published by Liam Fox’s Department for International Trade confirmed Britain will “pursue” negotiations with other countries during the time-limited transition, but will not be able to bring into effect any free trade agreements with other countries until the period is over, probably in 2021.

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Legislation will also be introduced to “transition” all existing EU trade agreements and preferential arrangements with other countries into domestic law after leaving the bloc.

And a Trade Bill will include a preferences scheme providing “as a minimum” the same level of duty-free access to the UK market for developing countries.

Today we have set out the first steps in the UK's future trade policy #tradepaper https://t.co/13T1Z5Jsxq pic.twitter.com/0EIqZEzACx — Dept. for Int. Trade (@tradegovuk) October 9, 2017

Meanwhile, a Customs Bill will legislate for a new “stand alone” customs regime after Brexit, regardless of any deal with the EU.

Our Customs Bill White Paper outlines how we will implement a new customs regime after Brexit https://t.co/nM79i7PTrv pic.twitter.com/nSVED4CRXH — HM Treasury (@hmtreasury) October 9, 2017

It will also amend the VAT and excise duty regimes so that they can continue to function effectively once the UK has left.

Mrs May said the new white papers “pave the way for legislation to allow the UK to operate as an independent trading nation and to create an innovative customs system that will help us achieve the greatest possible tariff and barrier-free trade as we leave the EU”.