Prime minister Theresa May’s decision to accede to Jacob Rees-Mogg’s demand that the UK sever ties with the European Union on value added tax has been condemned by British business leaders.

It could also result in a hard border in Ireland, which would mean the proposal faces sudden death when considered by the EU, experts have said.

The British Chambers of Commerce (BCC), describing it as a “bombshell”, said it would add significantly to costs; could make exports to the EU more expensive and less competitive; and could impact on the cash flow for small businesses trading with the EU, putting some out of business.