Britain to increase Brexit 'divorce bill' offer to Brussels, Chancellor Philip Hammond signals

Britain is poised to increase its Brexit “divorce bill” offer to Brussels, Philip Hammond has signalled, ahead of a fresh Cabinet clash on the issue.

Senior ministers are set to meet on Monday to decide a response to the EU’s December deadline to resolve the critical row over money, or future trade talks will be shelved.

Boris Johnson, the Foreign Secretary, and Brexit Secretary David Davis are both urging Theresa May not to concede too much on the financial settlement without guarantees on trade in return.

But the Chancellor – the Cabinet’s key advocate of keeping close economic ties with the EU – said Britain would make new “proposals” next month.

British companies would have to “break” contracts to import parts from the EU unless a transitional deal to allow trade to flow after Brexit Day, in March 2019, was agreed soon, he warned.

“The Prime Minister is clear that we will meet our obligations to the European Union ... we want to make progress in the discussions at the December Council,” Mr Hammond told the BBC’s Andrew Marr Show. “We will make our proposals to the European Union in time for the Council, I am sure about that.”

The comment will fuel speculation that the Prime Minister is preparing to up her offer to pay €20bn (£18bn) to trigger trade talks – perhaps by putting another €20bn on the table.

The Chancellor defended such payments, saying: “It’s not about demands, it’s about what is properly due from the UK to the European Union under international law in accordance with the European treaties.

“And we have always been clear it won’t be easy to work out that number but, whatever is due, we will pay. We are a nation that honours our debts.”

Britain would, however, “negotiate hard whether there is any question, any doubt about whether an item is payable or not,” he said.

The EU is believed to be seeking about €60bn (£55bn) from Britain, to settle outstanding liabilities from EU membership, before the negotiations can move on to a transition and future trade deal.

On Friday, Donald Tusk, the European Council president, said “much more progress” was needed within two weeks in order to make a breakthrough.

He dismissed Mr Davis’s claim that it was up to the EU to make the next “concession”. “I really appreciate Mr Davis’s English sense of humour,” he said.

The Prime Minister is not expected to reveal whether she will up her €20bn offer until the eve of the EU summit, on 14 December.

Publicly, the Government has insisted the EU must also blink, by agreeing that “the financial settlement will only be resolved in the context of our future relationship”.

However, key decisions could be taken at the Monday meeting of a small Cabinet committee set up to decide the Brexit negotiating strategy, with Mr Davis, Mr Hammond and Mr Johnson all in attendance.

In his interview, the Chancellor again stressed the dangers of delay warning companies would start making “alternative supply arrangements” in the coming months.

“British companies that are importing components from the European Union may have had to break those arrangements and start sourcing elsewhere,” he said.

Mr Hammond added: “It is a wasting asset and that’s why it’s in everybody’s interest that we get the implementation agreement as soon as possible.”