Theresa May says she will take UK into the hardest of Brexits if Brussels and MPs do not back her plan

Government estimates show leaving the EU with no deal may leave the UK billions of pounds poorer

Theresa May has signalled she is willing to drag Britain through the hardest of Brexits, risking the loss of billions of pounds and plummeting GDP, if both Brussels and the UK’s Parliament fail to give her what she wants.

In an act of brinkmanship, the Prime Minister warned she will walk away from EU withdrawal talks without a future trade agreement if other countries try to impose a "bad deal".

She agreed to give British MPs a vote on any terms she does agree, but her office then said that if the House of Commons dares to reject them, the UK would still leave the EU, most likely without any other agreement in place.

Ms May deployed the threats despite the Treasury’s own estimations having previously suggested quitting the EU without a new arrangement could strip £66bn from the national income, with GDP dropping by up to 9.5 per cent.

She also confirmed that Britain will leave the EU’s single market – despite backing membership less than a year ago – to regain control of immigration policy and said she wants to renegotiate the UK's customs agreement and seek a transition period to phase in changes.

Speaking to an audience of foreign dignitaries and journalists at Lancaster House, Ms May started her speech diplomatically, telling EU leaders directly that Britain wants the Union to succeed and admitting there would be "compromises".

But after reeling through 12 negotiating priorities and saying Britain "wants" to remain a friend to Europe, she added: "I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path.

"That would be an act of calamitous self-harm for the countries of Europe. And it would not be the act of a friend.

"Britain would not – indeed we could not – accept such an approach. And while I am confident that this scenario need never arise – while I am sure a positive agreement can be reached – I am equally clear that no deal for Britain is better than a bad deal for Britain."

Ms May also confirmed the Government will put any final deal agreed to a vote in both Houses of Parliament before it comes into force.

But after the Prime Minister sidestepped a question on what would happen if Parliament rejects the deal, her officials were clearer.

Her spokesperson said: "We will be leaving the EU.

"We will be having a negotiation. The outcome – MPs will have the opportunity to vote on that. Obviously we are focussed on going after that bright future and that new relationship…but whatever happens we will be leaving the EU."

Ms May argued that leaving with no replacement deal would be more damaging for European nations than the UK, which could still trade on the continent, strike new agreements elsewhere and transform its economic model into what critics have branded a "tax haven".

But a Government document leaked in October predicted plummeting GDP if Britain reverts to WTO rules, with a devastating impact on the public finances.

The draft Cabinet committee paper was based on a controversial study published by ex-Chancellor George Osborne in April during the referendum campaign. Despite being vilified at the time, the Treasury later stood by it.

Setting out more detail of her negotiating position, Ms May said she respected the position of EU leaders, that single market membership would mean bowing to free movement rules.

So to gain full control of UK immigration policy, she said: "We do not seek membership of the single market. Instead we seek the greatest possible access to it through a new, comprehensive, bold and ambitious free trade agreement.

"That agreement may take in elements of current single market arrangements in certain areas – on the export of cars and lorries for example, or the freedom to provide financial services across national borders – as it makes no sense to start again from scratch when Britain and the remaining member states have adhered to the same rules for so many years."

Ms May said her desire to sign new trade deals with other countries meant the UK could not stay in the customs union as it stands, but she did also want "tariff-free trade with Europe".

She went on: "Whether that means we must reach a completely new customs agreement, become an associate member of the customs union in some way, or remain a signatory to some elements of it, I hold no preconceived position. I have an open mind on how we do it."

The Prime Minister said she wanted to avoid a "cliff edge" when any new terms came in and to adopt a "phased process of implementation".

As well as single market access and a new EU free trade deal, Ms May said she wants to protect rights workers have gained from the EU, guarantee the rights of EU citizens in the UK and British citizens in Europe, continue intelligence and defence cooperation and maintain a common travel area between Northern Ireland and the Republic. She also said she wants to conclude negotiations for the lot in two years.

Foreign Secretary Boris Johnson said Ms May's "powerful" speech will be "well received" by EU nations.

But asked why the EU would give the UK a "free lunch", he said: "As the Prime Minister said, I think it's going to be good for both sides."

Germany’s Angela Merkel welcomed the clarity Ms May’s speech had brought, and chief EU Commission negotiator Michel Barnier said he "ready" to start talks.

European Council president Donald Tusk said Ms May’s speech meant the EU had a "more realistic" view of Britain's hopes, but other EU politicians had a less measured reaction.

Jan Philipp Albrecht, Green Party MEP for northern Germany, tweeted: "May: Go f**k yourself EU but please don’t let us down. Whine whine."

Claiming that May’s demands are "daydreams", he added: "Many of the 52 per cent of Brits voting leave clearly believed that they would stay in a common European market. They’re f**ked together with the 48 per cent."

Kathleen Van Brempt, a Belgian socialist, said the EU “is not a menu where the UK can freely pick and choose to their liking", while Swedish Moderate MEP Christofer Fjellner wrote: "UK leaving the single market will come at a large cost."

At home the response from Labour was muted, with leader Jeremy Corbyn expressing concern at the tone of Mrs May's address.

He added: "There seemed to be an implied threat that somewhere along the line, if all her optimism of a deal with the European Union didn't work, we would move into a low-tax, corporate taxation, bargain basement economy on the offshores of Europe."

The party’s shadow Brexit secretary Sir Keir Starmer suggested Ms May’s plan will not be a hard Brexit if she achieves what she wants.

But backbencher and ex-shadow chancellor Chris Leslie said leaving the single market is "not good news", while ex-shadow business secretary Chuka Umunna warned Britain could be on a path to "ten per cent, 13 per cent and up to 40 per cent tariffs on cars, clothes and meat".

Liberal Democrat leader Tim Farron accused Ms May of a "theft of democracy" for not allowing a referendum on her new deal and said she had wrongly claimed people voted to leave the single market in last June’s plebiscite.

He said: "This speech was a mixture of vague fantasies and toothless threats to our nearest neighbours. At the moment Britain needs friends more than ever, she has succeeded in uniting the rest of Europe against her."

The SNP’s Nicola Sturgeon said the direction Ms May was taking the country is not in Scotland’s interests and accused her of taking decisions based on the "obsessions of the hard-right of the Tory party".

She added: "For all her warm words, it is now clear that the UK is heading for a hard Brexit, which threatens to be economically catastrophic."