The warning came as the Prime Minister set the direction for the next two years of Brexit talks, confirming that the UK will abandon its membership of the single market and seek a trade deal with the EU instead.
She also ruled out the Scottish Government demand for a separate Brexit deal allowing Scotland to remain in the single market – and warned EU leaders she was willing to walk away from the negotiating table, telling them: “No deal for Britain is better than a bad deal for Britain.”
Ms Sturgeon said a “hard Brexit” was against Scotland’s interests and presented voters with a choice between independence and a “race to the bottom”.
Mrs May said the referendum result meant the UK had to impose controls on EU migration, making continued membership of the trading bloc impossible. But she pledged to go into negotiations seeking the “freest possible trade in goods and services”.
Dismissing the central pillar of the Scottish Government’s demand for a separate Brexit deal, the Prime Minister said there would be “no new barriers to living and doing business within our own Union”.
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The comments rule out Scotland having its own trading relationship with Europe, which would require customs checks within the UK.
In a call for unity aimed at the SNP, Mrs May said she would “put the preservation of our precious Union at the heart of everything we do” and said the “right powers” would be passed to devolved administrations as they are returned from Brussels. The Prime Minister set out an ambitious timetable, insisting the UK could agree exit terms and a new trading relationship within the two-year official negotiation period that begins when the government triggers Article 50 of the Lisbon Treaty by the end of March.
Mrs May also said she wanted a “phased process” following the UK’s departure in 2019, giving companies a “smooth and orderly” transition.
However, the Prime Minister made clear she was willing to walk away from talks without a deal if EU members refused to give the UK the trade deal it wants, leaving businesses facing World Trade Organisation (WTO) tariffs.
MPs will also be given a binding vote on the final deal with the EU, which would also result in the UK reverting to WTO trade rules if the government failed to win support for the agreement it negotiates.
Any attempt to impose punitive Brexit terms on the UK would be a “calamitous act of self-harm”, she said.
“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.”
Mrs May said that without a phased transition to a favourable trade deal, she would be “free to change the basis of Britain’s economic model”, slashing business taxes and regulations to undercut EU economies.
The EU’s chief negotiator Michel Barnier underlined reluctance on the European side to discuss the UK’s exit and a future trade deal in parallel, tweeting: “Agreement on orderly exit is prerequisite for future partnership.”
The Prime Minister said she would seek continued co- operation with EU countries on justice and security, as well as ongoing participation in European science and research. She also pledged that EU regulations on workers’ rights would be built upon as they are transferred into UK law.
Britain could continue to pay Brussels for inclusion in specific European programmes, the Prime Minister said, but pledged that “the days of Britain making vast contributions to the EU every year will end”.
Mrs May said she wanted agreement with the EU on the rights of its nationals living in the UK, and British citizens living in Europe.
The SNP’s deputy leader Angus Robertson said the Prime Minister was bowing to pressure from the right, and demanded that the Scottish Government’s calls for Scotland to remain in the single market be considered.
Labour leader Jeremy Corbyn accused the Prime Minister of seeking to turn the UK into a “bargain basement tax haven on the shores of Europe”.
Liberal Democrat leader Tim Farron said Mrs May was “waving the white flag” on retaining access to the single market.