Brexit: Leaked documents show EU could restrict UK's single market access during transition

Brussels will demand the power to block Britain's access to the single market during the post-Brexit transition period, according to leaked papers indicating a hardening of the EU's negotiating stance.

Draft legal documents show that EU leaders want a mechanism to "suspend certain benefits" including "participation in the internal market" if the UK does not abide by the bloc's laws and regulations during the two-year transition period after it leaves.

The five-page text, which have been leaked to media outlets, also seeks to prevent Britain from making challenges against the EU rules in the European Court of Justice.

Demands for enforcement powers signal growing fears in Brussels that Britain will not abide by its rules during the two-year period, as suspension of single market access would hit financial services, trade of goods and even agreements with airline operators.

The news will come as a blow to Theresa May as she gears up for two days of meetings of the Brexit 'war Cabinet', where her top team will hammer out plans for the future relationship with EU when Britain leaves the bloc.

These terms are likely to enrage Brexiteers, who fear Britain will become a "vassal state" after Brexit, and will make the Prime Minister's task of smoothing over bitter divisions in her own party more difficult.

The future transition will be the focus of EU-UK talks later this week in which a key stumbling block for Eurosceptics is Brussels' insistence that Britain accepts new EU rules and regulations during that time but surrenders its voting rights.

The leaked paper states: "In addition, the Governance and Dispute Settlement Part of the Withdrawal Agreement should provide for a mechanism allowing the Union to suspend certain benefits deriving for the United Kingdom from participation in the internal market where it considers that referring the matter to the Court of Justice of the European Union would not bring in appropriate time the necessary remedies."

Whitehall attempted to play down the significance of the draft text, insisting it would form the basis for a negotiation.

A Department for Exiting the European Union spokesman said: "This is a draft document produced by the EU that simply reflects their stated directives.

"The Secretary of State set out the UK's position in his speech in Teesside last month.

"Together these provide a solid foundation for the negotiations on the implementation period which have begun this week with the aim of reaching agreement by March European Council."