Theresa May's Tory leadership faces fresh Brexit revolt as Philip Hammond vows to keep UK interlocked with EU

Prime Minister accused of 'losing control of the Brexit process' as the two wings of her party fight over her withdrawal policy

Theresa May's speech to the World Economic Forum in Davos was quickly overshadowed by her Chancellor's (Reuters)

A fresh outbreak of Tory infighting is threatening Theresa May’s leadership after Philip Hammond vowed to keep Britain interlocked with the EU – while hard Brexit supporters staged an open revolt.

The Prime Minister was accused of “losing control of the Brexit process” as the two wings of her party fought over her withdrawal policy, which Eurosceptics increasingly see as a sellout.

In Davos, the Chancellor inflamed tensions with a dramatic call for only “very modest” changes to the UK’s trading rules with the EU, setting out the risks of trying to break free.

He went out of his way to praise the plea by the CBI employers’ organisation for the “closest possible relationship between the EU and the UK post-Brexit” – days after it called for permanent membership of the customs union.

Britain must not agree to anything that “throws away all the benefits we have of the complete alignment of our regulatory systems, the complete integration of our economies”, Mr Hammond said.

He later sought to clarify his remarks by saying "for anyone concerned" that the UK would be outside the customs union and single market "which clearly represents change".

But, in a major speech, Jacob Rees-Mogg put himself at the head of a growing Brexiteer revolt.

The Government was accused of planning to leave the UK “shackled to the EU” and of putting the free-trade benefits of Brexit “at risk”.

“The British people did not vote for that. They did not vote for the management of decline,” Mr Rees-Mogg told an audience in Hampshire.

“They voted for hope and opportunity and politicians must now deliver it.

“If we do not, if we are timid and cowering and terrified of the future, then our children and theirs will judge us in the balance and find us wanting.”

Mr Rees-Mogg. chair of the influential European Research group of anti-EU Tories, continued: “The UK’s approach to the EU talks has failed and must stop doing so.”

The clashes came amid renewed speculation of a vote of no-confidence in Ms May, with the number of Conservative MPs demanding a ballot thought to have crept closer to the 48 required to trigger it.

There is mounting evidence of a Eurosceptic revolt against her plans for a two-year transition on “current terms” – and long-term “full alignment with EU rules”, if necessary to prevent a new hard Irish border.

New leaked negotiating guidelines drawn up by Brussels showed Britain will have no right to even be in the room while EU laws are made – despite having to implement them in full during a transition period.

John Redwood, the former Cabinet minister, rowed in behind Mr Rees-Mogg, demanding that the UK crash out of the EU without a deal if no future free trade agreement has been struck by Brexit day.

Britain would then “get the full benefits immediately of paying them no more money and being able to change our laws and control our own borders as we see fit”, he said, adding: “That is what Leave voters voted for.”

But, on the other side of the divide, one pro-EU former minister, Ed Vaizey, tweeted his response to the sign that the Chancellor was flexing his muscles on Brexit with a single word: “Phew.”

Stephen Doughty, a Labour MP and supporter of the Open Britain group, which campaigns against a hard Brexit, said: “Theresa May is losing control of the Brexit process.

“Not only has she completely alienated pro-Europeans, she now has Brexit extremists on her own back benches like Jacob Rees-Mogg, as well as members of her own Cabinet, growing increasingly undisciplined.

“This is a direct product of the many hypocrisies and inconsistencies that have plagued the Government’s handling of the Brexit negotiations. Theresa May’s chickens are coming home to roost.”

A No 10 spokesman was unable to say if Ms May agreed with her Chancellor’s stance, or whether the speech had been approved by Downing Street in advance.

Mr Rees-Mogg also indicated, in a BBC interview, that pro-Brexit MPs would seek to amend the legislation that some see as a back door to remaining within the customs union.

It was revealed, earlier this month, that the Taxation Bill will allow MPs to vote for Britain to rejoin the trading group after Brexit without further legislation.

Earlier, Mr Hammond also admitted that MPs will not know “the full details” of Britain’s future trade deal with the EU, when they vote on the Brexit withdrawal terms later this year.

Caroline Lucas, the Green Party co-leader, accused him of having “let the cat out of the bag” with the comments, which contradict David Davis insistence that the negotiations will conclude before departure day.

Meanwhile, a former Irish prime minister claimed David Davis does not “understand” Brexit’s momentous implications for the border in Ireland, in a withering put-down.

Bertie Ahern said the Brexit Secretary was unable to explain how the UK could meet its pledge to avoid the return of a hard crossing – yet leave the EU’s economic structures.

On Friday, Mr Davis will set up another clash with EU leaders in a speech in Middlesbrough, insisting on the UK’s freedom to negotiate and agree trade deals with other countries during the transition, until at least the end of 2020.

He is also expected to say the UK wants to stay in the EU’s existing trade deals with other countries – something else Brussels may well oppose.