The Brexit Secretary said one of the consequences of a no-deal scenario “is that obviously we wouldn’t pay out the money that has been agreed as part of the withdrawal agreement”.
He said UK would “recognise our strict legal obligations” but that the amount paid would be “significantly, substantially lower” than the £39 billion.
Mr Raab insisted warnings the UK would not the full amount were a “statement of fact”, not a threat.
He said it was “unlikely” there would be no deal but the EU could not “cherry pick” the parts of the negotiations that had gone well if that happened.
Mr Raab said: “It’s not a threat, it’s statement of fact as part of our no-deal planning that, yes, we would be mindful of our strict legal obligations, but the amount and the phased way it is set out in the withdrawal agreement would fall away because there would be no deal.
“It’s not a threat and it’s not an ultimatum, it’s a statement of fact. I don’t say anything outside of the negotiation room that I haven’t and wouldn’t directly to our EU friends and partners, and I think it is well understood on both sides.”
His comments came after Theresa May made it clear Britain would re-calculate the divorce settlement if an arrangement on future trading relations was not reached.
The Government is preparing to release a new raft of technical papers expected to focus on how a no-deal Brexit would impact on things like mobile phone roaming charges.
Theresa May summoned her Cabinet to a three-hour meeting this morning to plan for no deal.
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8.30am update: Raab says businesses wrong to blame Brexit for profit falls
Brexit Secretary Dominic Raab said it was easy for businesses to blame Brexit on bad results after department store chain John Lewis announced pre-tax profits before exceptional items had nosedived 98.8 per cent to £1.2 million.
He said: “I think it’s probably rather easy at this moment in time for any business that isn’t doing rather well to point to Brexit.
“I don’t doubt that some of the uncertainty around these negotiations will have an impact on business, that’s why we are putting all our energy into getting the good deal we want with our EU friends and partners.
“All I am just gently saying is that it’s rather easy for a business to blame Brexit and the politicians rather than take responsibility for their own situation.”
Mr Raab said economic growth and real wages were “accelerating”.