Sajid Javid admits some businesses will be hit by Brexit as he warns firms there will be ‘no alignment’ with EU

Chancellor's comments prompt warning over price rises after Brexit

Sajid Javid has admitted businesses will be hit by Brexit as he fired off a warning to manufacturers that “there will be no alignment” with EU rules.

With less than two weeks until the Brexit deadline, the chancellor said the Treasury would not support manufacturers that favour EU rules as firms have had three years to prepare for a new trading relationship.

The Food and Drink Federation said the comments sounded a “death knell” for frictionless trade and warned food prices would probably rise by the end of the year.

Hammering out the future relationship with Brussels will be critical for the government over the coming months, with trade talks to begin once the UK officially leaves the bloc on 31 January.

The EU wants the UK to remain closely aligned to its rules in exchange for a bumper trade agreement – but Boris Johnson has repeatedly said he wants to break free from Brussels.

Mr Javid told the Financial Times: “There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year.”

He added: “There will be an impact on business one way or the other, some will benefit, some won’t.”

Asked how differing regulations may affect industries such as automotive and pharmaceuticals, he said: “Japan sells cars to the EU but they don’t follow EU rules.”

He added: “We’re also talking about companies that have known since 2016 that we are leaving the EU. Admittedly, they didn’t know the exact terms.”

Senior EU figures have warned that Mr Johnson’s timetable for trade talks is too short, as the prime minister has ruled out extending the transition period beyond December 2020.

Mr Johnson’s timeframe means the UK has given itself only 11 months to negotiate a complicated agreement, which would usually take years to complete.

Tim Rycroft, chief operating officer for the Food and Drink Federation, said the comments had dashed hopes for frictionless trade with the EU, which would adversely affect firms.

He told BBC Radio 4’s Today programme: “It sounds awfully like the death knell for the concept of frictionless trade with the EU.

“And that means that our food and drink industry is going to have to spend the remaining months of 2020 preparing for a whole set of new checks and procedures and processes and costs in our trade with the EU.

“It will be very diverting for this year. It will mean that our attention [that] is sort of focused on growth and serving our customers will be diverted towards preparing for this outcome, and it means, probably, that food prices will rise once we formally leave at the end of the year.”

John McDonnell, Labour’s shadow chancellor, said it was clear that Conservative promises of frictionless trade were “not worth [the] paper they were written on”.

He said: “There are now real fears about food price increases and threats to jobs in the motor industry and manufacturing.

“This is right wing ideology overriding common sense.”

His concern was echoed by Lib Dem acting leader Sir Ed Davey, who said the chancellor "must take the blinkers off and pay attention" to industry.

He said: "To risk all that in favour of narrow, ideological ends is a real slap in the face. It is the height of irresponsibility for which the British public will be forced to pay."

Dame Carolyn Fairbairn, CBI director-general, said: “Business welcomes the Chancellor’s ambitious vision for the economy and recognises there are areas where the UK can benefit from its future right to diverge from EU regulation. However we urge government not to treat this right as an obligation to diverge.

“For some firms, divergence brings value, but for many others, alignment supports jobs and competitiveness – particularly in some of the most deprived regions of the UK."

The UK is on course to leave the EU on 31 January after MPs overwhelmingly approved the prime minister’s Brexit deal in the Commons.

The legislation, known as the Withdrawal Agreement Bill, is undergoing scrutiny in the Lords where pro-EU peers are expected to give the bill a rougher ride.