Britain faces having to pay EU until 2020

British negotiators have not ruled out "ongoing payments" in exchange for a free-trade agreement with the EU. Photo / AP

Britain will have to continue paying billions into the European Union budget after it leaves to secure a "transition" trade deal with Brussels, senior Whitehall sources say.

Brexit will leave an 8 billion ($14.8b)-a-year black hole in the EU's finances, which is causing significant anxiety across the continent - including in Germany, which fears it will have to pick up the bill for any shortfall.

British negotiators are examining plans that would see the UK contributing billions to cover the gap in the EU's finances between Brexit in March 2019 and the end of the EU's seven-year Budget framework in 2020.

However, the payments will only be offered in exchange for a "sensible" transition deal, under which British businesses would retain access to the single market for two years after Brexit.

A senior Whitehall source said: "Payments up to the end of this MFF [Multi-annual financial framework] is something that we could put on the table which would help them fix a big short-term problem in their budgets."

The source added that British negotiators have not ruled out "ongoing payments" in exchange for a free-trade agreement with the EU.

The ideas, which are highly sensitive given the likelihood of opposition from some Brexiteers in Westminster, reflect a growing recognition that money will provide key leverage in the coming talks.

It comes as Jean-Claude Juncker, the President of the European Commission, and Michel Barnier, the EU's chief Brexit negotiator, arrived in London overnight for talks with Prime Minister Theresa May.

Meanwhile, Foreign Secretary Boris Johnson will make his first speech of the election campaign, in which he is expected to say Britain will not turn its back on the world after Brexit.

David Davis, the Brexit Secretary, will also make a speech in London about the Government's plans to make a success of Brexit, striking an upbeat note despite a stream of tough signals emanating form Brussels.

Separately, a flagship Labour pledge to end free movement immediately unravelled yesterday as it said that EU migrants should be able to come to Britain as long as they have a job offer.

Sir Keir Starmer, the shadow Brexit secretary, announced that "free movement has to go" in what appeared to be a significant break with Jeremy Corbyn. However, the pledge unravelled within hours after he subsequently said there should be "free movement of labour", adding that "we must have immigration" for the economy.

The European side has been hardening its lines on Brexit since May triggered Article 50 last month and is making a transitional arrangement contingent on continued budget payments, free movement of people and accepting the jurisdiction of the European Court of Justice (ECJ).

The EU's negotiating guidelines are to be finalised at a summit this weekend.

May last week called a snap elect for June 8, hoping for a stronger position going into Brexit negotiations.