A fight is brewing between two government departments over Brexit

The UK’s chief Brexit negotiator has accused the Treasury of trying to “undermine” him, according to a report in the Telegraph.

David Davis, the Secretary of State for Exiting the European Union, said the Treasury is “pulling the rug” beneath attempts to talk tough on Brexit as part of a “desperate strategy” to keep the UK in the 28-nation single market.

The Telegraph cited a friend of Davis after the leak of a Treasury estimate that a “Hard Brexit” — Britain leaving the European Union without access to the single market — will cost the UK £66 billion ($81.2 billion) a year in lost tax revenues.

The Treasury warned cabinet ministers that Britain’s GDP could fall as much as 9.5% because it would have to rely on the World Trade Organisation rules for trading, missing out on more favourable trading tariffs that come with being a member of the European Single Market.

Prime minister Theresa May’s government has raised the possibility of a so-called “Hard Brexit,” which prioritises control over immigration, as opposed to maintaining some economic links in return for concessions on Freedom of Movement.

Such a move would also lead to the automatic loss of the City of London’s EU financial passport. The loss of passporting rights would be devastating to the City of London. The Financial Conduct Authority (FCA) said earlier this year that 5,500 UK companies rely on passporting rights, with a combined turnover of £9 billion.

The Treasury expects both trade and foreign investment in Britain to be around a fifth lower than it otherwise would have been if the UK relies on WTO rules for trade. This would also have a knock-on negative effect for productivity, hence the huge drop in tax receipts.

Davis, along with foreign secretary Boris Johnson and trade secretary Liam Fox, are the most hawkish on Brexit, while UK chancellor Phillip Hammond has been more cautious.

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