The Chancellor has indicated the Government will accept EU proposals for a Brexit transition period, despite concerns raised by some Conservative Eurosceptics.

On Friday the EU published a document which set out the process of agreeing the terms of transition, which made clear the UK will be expected to observe all EU rules during the period, including on freedom of movement, and be barred from making independent free trade deals.

During a trade visit to China, Philip Hammond was asked whether the UK would remain subject to the jurisdiction of the European Court of Justice and participate in the single market and customs union, despite not having membership or a role in rule making.

“In a word, yes,” said the Chancellor.

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Philip Hammond hopes to build new trade relations during his official visit to China
Philip Hammond hopes to build new trade relations during his official visit to China

Outlining the likely contours of the implementation period, Mr Hammond went on to explain what businesses should anticipate.

“What they should expect as a result of the agreement we’ve reached this week with the European Union is a transition, or implementation period, which will start at the end of March 2019, during which we will no longer be members of the European Union, we won’t technically or legally be in the customs union, or in the single market.

“But we’re committed, as a result of the agreement we’ve made this week, to creating an environment which will effectively replicate the current status quo so that businesses can carry on trading with their commercial partners across the European Union, as they do now.

“Borders will operate as they do now, and financial service businesses will be able to carry on conducting their business across borders as they do now.”

When pressed on whether the Government would have a say in EU decision-making during the period, the Chancellor responded: “We won’t be members of the European Union, and therefore we won’t sit in the European Council or any of its subordinate bodies, and we won’t have a vote.”

Theresa May

Phase two of Brexit talks an ‘important step’

The EU’s proposals for the implementation have already been criticised by the influential Conservative backbencher Jacob Rees-Mogg.

“If the acquis (the body of EU law), the ECJ and free movement remain we would not be in an implementation period but would still be de facto in the EU,” he told Sky News.

“I assume that Her Majesty’s Government will make its own proposals and not roll over in the way it did at the beginning of the process”, Mr Rees-Mogg added.

Following the EU Council’s decision to declare “sufficient progress” had been made in the first phase of negotiations, the talks between David Davis and Michel Barnier can now progress on next month to discussing the terms of the transition period, before turning to the future trading relationship in March.

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On Tuesday, the Cabinet is expected to hold its first detailed discussions about what future trading relationship the Government will seek.

But what were already likely to be difficult conversations could be made more complicated if there are divisions over the nature of the implementation period.

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Environment Secretary Michael Gove is understood to be keen that the UK leaves the EU’s Common Agriculture Policy and Common Fisheries Policy during any transition period.

The EU’s transition proposals would also mean International Trade Secretary Liam Fox would be unable to finalise bilateral trade deals until at least 2021.