Prime Minister Boris Johnson has told the UK’s chief Brexit negotiator David Frost to walk away from trade talks with Michel Barnier unless the subsidy issue is resolved.
This comes to light as the two are meant to meet this week to try and salvage a deal after growing concern from the EU the UK will crash out of the bloc without one.
Mr Frost is expected to tell Mr Barnier trade talks will not go ahead unless the EU drops its demand for Britain to commit to a subsidy policy.
The bloc wants Britain to continue to follow rules preventing the Government from subsidising British companies over its European rivals.
Sources have confirmed that Frost fears any specifics on subsidy policies will tie Britain to EU rules. They said: “We think the right thing to focus on is how we solve disputes and solve transparency, not to tie into continuity with something that looks like the EU’s policy.”
It comes after the EU dropped demands for Britain to be fully aligned with the bloc’s competition rules. Mr Frost will also tell Mr Barnier the request for the UK to agree with state aid rules is unreasonable.
He will add the demand is out of line with every free trade agreement the EU has made with other countries. The source added to the Times: “In every other agreement they’ve signed the state aid subsidy provisions focused on how we resolve disputes between the two sides rather than on the substantive content of the other side’s policy, precisely because they know it can evolve over time.”
Recently the Sunday Times reported Mr Johnson had instructed his negotiator to end negotiations if the subsidy policy demand is not dropped.
The EU regards the issue as a red line and does not want to compromise on the matter.
The Times said: “There has been a discussion about whether or not to compromise on state aid and Boris said no.”
More complications about subsidies exist as the Government is set to define their terms for a policy by the end of September, and Mr Frost has blocked any moves towards a joint agreement on legal texts until terms are defined.
The EU has said the end of the month is the deadline for any deal to be submitted.