Liam Fox has told Tory MPs that a customs union is the "worst of both worlds" and will leave Britain unable to set its own trade policy in a leaked letter obtained by The Telegraph.

The International Trade Secretary said that the UK will itself be "traded" by the European Union as it sells access to British markets as part of future deals after Brexit.

His comments, in a four-page letter to the 1922 committee of backbench Tory MPs, come as the Prime Minister is in negotiations with Labour over a new deal that could include membership of a customs union after Brexit.

The strength of his intervention suggests that Dr Fox would be unwilling to stay in Cabinet if the Prime Minister was to pursue a customs union with the EU.

In the letter he said: "We would be stuck in the worst of both worlds, not only unable to set our own international trade policy but subject, without representation, to the policy of an entity over which MPs would have no democractic control.

"This is something that Labour do not presently seem to understand. As I said at the meeting, in such a scenario the UK would have a new role in the global trading system.