THERESA May's warning to EU leaders that Britain could walk away from Brexit talks could spark a trade war, a South East MEP has claimed.

Reacting to the Prime Minister's speech today, Anneliese Dodds accused Mrs May of threatening to turn the UK 'into a giant tax haven' if the other 27 EU nations offered a bad deal. 

Labour's Ms Dodds said: "May, with all the zeal of a convert, has decided that her 'hard', 'clean', 'red, white and blue' Brexit must mean an economic hit to the country, which will inevitably be felt by the poorest, so that she can appease the xenophobic right wing of her party.

"She demands that the EU play ball in helping her to deliver this. And if they don't? The threat could not have been clearer.

"Play ball with us, or we turn the UK into a giant tax haven and undercut the lot of you. 

"The starting gun fired for a trade war. If Theresa May stays on this course, it will end badly for everyone."

Her comments came after the Prime Minister warned fellow EU nations she was ready to walk away from Brexit talks rather than accept a 'punitive' deal, in her most important speech to date.

Setting out her 12 key objectives for EU withdrawal, Mrs May announced Britain will leave the European single market but will seek a 'bold and ambitious' free trade agreement to allow it to continue trading with its 27 former partners.

Witney Gazette:

  • Prime Minister Theresa May. Pictire: AP/Kirsty Wigglesworth

The PM also confirmed she wants to take Britain out of the jurisdiction of the European Court of Justice, restore control over immigration and give MPs and peers a vote on the final deal reached after talks.

But she warned: "I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path.

"That would be an act of calamitous self-harm for the countries of Europe. And it would not be the act of a friend.

"Britain would not - indeed we could not - accept such an approach.

"And while I am confident that this scenario need never arise - while I am sure a positive agreement can be reached - I am equally clear that no deal for Britain is better than a bad deal for Britain."

It prompted warnings from Oxford East MP Andrew Smith, who said: "In committing Britain to leaving the single market the Prime Minister is taking a huge gamble with our economy, which will be a big worry to businesses and employees in Oxfordshire as elsewhere. 

"It will be mission critical in the negotiations to get tariff-free access to the single market and freedom of movement for those workers and researchers crucial to the success of the Mini plant, our universities and research centres. 

"I have already pressed the case on this to government and will continue do so relentlessly to stand up for Oxford’s interests."

And David Blackman, of the European Movement's Oxford branch, said: "The Prime Minister’s speech outlines the starting point for one side in challenging negotiations; the end result may be very different.

Witney Gazette:

  • Mrs May warned the EU not to 'punish' Britain in any future deal

"We in Oxford need to be sure that our car industry is protected; and that our universities and research centres can continue to participate in European research programmes.

"We are very conscious of the need to protect the status of the many non-British EU nationals who live among us and contribute so much to our community, for example in the National Health Service.

"We are glad to see that the final ‘deal’ will be submitted to Parliament, and we hope that this will not happen in a last-minute rush.

"Cliff-hangers must be avoided. We would also add: why not hold another referendum on the final ‘deal’, which may be very different from the promises made during the referendum campaign?"

The markets reacted positively to the PM's speech, with the pound soaring more than two per cent to over 1.23 US dollars, after slumping below 1.20 in the past few days as speculation grew that the UK would be leaving the single market.

Much of the boost appeared to come after Mrs May's announcement that MPs and peers will be given an opportunity to block the Brexit deal.

Addressing an audience including diplomats from around the world at Lancaster House, Mrs May said she expected 'compromises' on both sides during the two-year Brexit negotiation.

But she said she was committed to 12 key objectives, including controlling immigration, free trade with European markets, the freedom to strike free trade agreements with nations outside the EU and a 'smooth orderly Brexit'.

She rejected calls for a 'transitional deal' to tide Britain over until a full-scale trade agreement can be struck, warning this could end in a 'permanent political purgatory'.

But she said the deal should be implemented in a phased process to deliver a 'smooth and orderly Brexit', which could see changes to immigration laws, customs systems and legal frameworks introduced at different times.

It was welcomed by Banbury MP Victoria Prentis, who described the speech as 'strong, inspiring and ambitious'.