Philip Hammond has said the UK could become a corporate tax haven if the EU fails to strike a deal on single market access after Brexit.
Speaking to Germany's Welt am Sonntag, the Chancellor said Britain would do whatever it takes to "regain competiveness" if European markets were closed to it.
That included considering abandoning an EU-style social model with high levels of taxation and regulation to "become something different", he added.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
"The British people are not going to lie down and say, 'Too bad, we've been wounded,'" he said. "We will change our model and we will come back and we will be competitively engaged."
It was, says Voice of America, a "thinly veiled threat that Britain could use its corporate tax as a form of leverage in Brexit negotiations".
The rhetoric seemed at odds with the message Hammond gave his German counterpart Wolfgang Schauble during a trip to Berlin last week, "namely that the UK had no desire to disrupt the EU during its divorce from the bloc", says The Guardian.
On Saturday, the deputy prime minister of the Netherlands said his country would block any post-Brexit EU trade deal with the UK unless it agreed to "firmly" tackle tax avoidance.
Lodewijk Asscher, in a letter to fellow left-leaning politicians across Europe, said he feared the British government would lead a "race to the bottom for profits taxation" that would have negative ramifications across Europe.
He will find at least one ally in the UK. Speaking to the BBC's The Andrew Marr Show yesterday, Labour leader Jeremy Corbyn said Hammond's threat was "an extremely risky strategy" that could start a trade war with the EU.
He added: "[The Prime Minister] appears to be heading us in the direction of a bargain basement economy on the shores of Europe."
Theresa May is expected to outline her vision for Brexit in a speech tomorrow that will reportedly argue for leaving the EU single market and customs union in favour of a bespoke deal.
But she has repeatedly asserted that will not result in UK companies having severely restricted access to the world's largest trading bloc.
Create an account with the same email registered to your subscription to unlock access.