The UK has said it will walk away from post-Brexit trade talks if Brussels does not drop its demand to align with EU state aid rules.
UK Brexit negotiator Lord David Frost has told his counterpart Michel Barnier that the UK is not willing to compromise on this point as the potential of a no-deal exit draws closer.
Brussels is demanding that the UK adopts EU rules that prevent the government from subsidising domestic companies at the detriment of Europe’s private sector.
Brussels is also demanding that the UK aligns its regulations on other things like labour and environmental standards in what would be known as a “level playing field” for businesses on both sides of the channel.
In return the EU would continue to trade with the UK on a no tariff basis.
Level playing field demands have been the major obstacle to progress in negotiations, along with disagreements over EU fishing access to UK waters.
A source close to Frost told the Sunday Times: “Frost has made clear to Barnier that as things stand he would have to recommend to Boris that we go for no deal.
“There has been a discussion about whether or not to compromise on state aid, and Boris said no.”
Frost has said recently that it is essential that the UK was not a rule taker on state aid in the aftermath of the Covid pandemic.
British businesses will likely need a wave of subsidies over the next few years as they deal with the fallout of the crisis.
Informal talks between the UK and EU will start again next week, with a formal negotiating round to follow the week after.