Lord Frost has fired a warning shot at Boris Johnson over the Government’s big-state spending plans as emergency Covid support comes to an end.

The Cabinet minister said the country must avoid “falling into the trap of statism”, in comments widely interpreted as a rallying cry against squandering the free market benefits of Brexit.

He dismissed as an "intellectual fallacy" claims that long-term economic growth could be founded on "big state, high levels of public spending, more regulation, and government-determined goals", and called for an end to all Covid restrictions as fast as possible.

Lord Frost’s intervention, at the annual Königswinter Conference in London, aligns him with the Chancellor Rishi Sunak and Liz Truss, Trade Secretary, in seeking a return to traditional fiscal conservatism after unprecedented spending to save the economy from Covid.

Official figures show that the UK borrowed £300bn in the 12 months to March, by far the largest amount of debt ever taken on in a single fiscal year.

Britain’s debt pile has grown to the highest level since the 1960s at 98.5pc of GDP, and Mr Sunak has warned tough choices will need to be made over the public purse.

The Chancellor has already announced a hike to corporation tax from 19pc to 25pc for large companies from 2023, and has frozen income tax thresholds in a move which will drag millions of people into the higher rate bracket.

High spending in some areas is expected to continue for many years, with the Government’s pledge to make Britain a net-zero carbon country by 2050 alone expected to cost many billions of pounds.

Lord Frost – who led Brexit negotiations with the European Union, is one of Mr Johnson’s closest advisers and is seen as a key architect of Britain’s deal – said the country should embrace a return to normality as vaccines finally bring Covid under control.

Covid infections in UK by vaccine status (Zoe Covid Study/Kings)

He said: "The pandemic has ushered in a range of measures literally unprecedented in a free society – indeed for the last year or so we have not really lived in a free society.

"I personally don’t want to accept that the levels of state involvement in our lives and in the economy we have seen in the last year are in any way normal. I want to get back to the old normal as soon as we can.

"As we emerge from the pandemic, we must not lose our conviction that individual not collective rights are paramount, that living with risk is inevitable, or our belief that free debate and free expression of opinion is the right way forward for a free society."

The speech will be seen as a rallying call for Tory frontbenchers to get back to Conservative principles of small state government and individual liberty when the pandemic is over.

Some ministers are anxious to wean the economy off government support, despite cases of the Indian variant rising rapidly and the last step of the lockdown roadmap being delayed to next month.

Mr Sunak used an interview with GB News on Wednesday night to declare himself a “fiscal conservative” and vowed to bring public spending back under control.

He said: “It’s not my money, it’s other people’s money and I take my responsibility for that very seriously."

Sources close to Lord Frost said his interventions were not “coded remarks” directed at the Prime Minister, who has previously declared there will be “no return to austerity” when the pandemic is over.

A source said: “The sentiment is something that the vast majority of the party, the Cabinet and the Prime Minister would agree with. He’s of that mindset as well.”

The Tory peer, who led the team that negotiated Mr Johnson’s Brexit deal, also used his speech to criticise the EU for creating a “fractious and friction-filled relationship” between the UK and the bloc.

Brexit sausage war explained

Tensions have been rising with Brussels over the so-called “sausage wars” – a dispute about the shipping of chilled meats across the Irish Sea.

EU officials have insisted that products travelling to Northern Ireland must be subject to the same checks as those ultimately destined for the single market.

Lord Frost said: “We have been surprised by the EU’s willingness to resort quite quickly to threats when problems arise."

He advised his European counterparts to “respect this delicacy and to work with us to find a pragmatic and negotiated solution”.

Adding that a predicted collapse in trade with the EU after Brexit "has not happened", Lord Frost said: "Leaving the EU wasn’t the final goal – it was a doorway, a portal through which we had to pass, the beginning of a journey to national renewal and a repositioning of Britain on the world stage.

"I think it’s because people sense those possibilities that the mood in Britain is better than many
thought it would be."

Read Lord Frost’s full speech below:

It’s conventional at this point at events like these to reflect on the strength of our bilateral relationship.  

But I hope that for the UK and Germany that hardly needs doing. The events, the connections, the reality all speak for themselves. 

Let me give a few examples.  

Germany, which we described as our “essential ally” in the IR, was the only country in the world in 2020 to receive visits from the Prince of Wales, the PM, the Foreign Secretary, and the Chancellor. And we were delighted to have Chancellor Merkel  here for the G7 in Cornwall last week, with a very warm and friendly bilateral meeting  with our Prime Minister too.  

We will have soon a Joint Declaration on Foreign and Security Policy, to complement the existing Joint Defence Vision – and, I hope, with more to follow soon. I agree with Ambassador Michaelis that there is room to make the governmental relationship  a bit more structured and we should work on that in the months to come.  

There are 1,800 cooperation projects between our universities. 

We have huge investment in each other’s countries – 1400 British companies in Germany, 2500 German companies in the UK. 

And cultural exchanges are equally rich. Neil MacGregor’s role at the Humboldt Forum is well known, as is Hartwig Fischer’s at the British Museum – but there is much more. 

I could go on. But there is no need to. The short version is that this is what you would expect between two great European countries. There’s a rich set of contacts  at all levels – government, business, broader civil society, and beyond. 

And of course KW itself is part of that and has been since the beginning. And let me put in a plug here for not just the main event but for YKW. My own engagement in  KW is actually framed, until today, by 2 YKW events – my first involvement, in 1995, in Berlin, and my last, as a speaker at YKW in Frankfurt in 2018, where Hans Henning was present, where I fear I shocked some of our German friends, and quite a few Brits too, with my views on Brexit. So I’d like to say thank you and well done Annika Muller De Vries and everyone else who has kept YKW going and to underline my hope that we can keep and intensify the pipeline of people from YKW to KW  proper. It’s crucial that KW makes an effort to be representative of all parts of our  societies – by generation, by profession, by political views.

I want to say a little more on that last point. This is a UK-Germany event, not an EU one. All the same obviously Brexit has been a matter of huge controversy at KW over the years, even if the 52/48 split in British opinion hasn’t generally been reflected in the perspectives of the British guests!  

This isn’t the moment to go over the arguments – they are done. It’s time to look forward and I want to set out how politics now feels here, and why, to help frame our discussions in the next 24 hours. 

First, a reflection on the current situation. Our relations with Germany are, I think, good. Our relations with the EU collectively and with the institutions are a bit more bumpy. Obviously no one is happy with that situation.  

Indeed I would go further. I think those who campaigned for Brexit wanted and  expected genuinely friendly and free-trading relations between the UK and the European Union – and still do. Nothing was further from our thoughts than the current fractious and friction-filled relationship that we seem to have now.

Why is that?  

– Some of the current difficulties are teething troubles.  

– Some of it might relate to what happens when people can’t travel, can’t meet, have no real means to discuss things informally or to defuse arguments.

But I fear some of it goes deeper.

– Some of it stems from lack of trust, for our part from the legacy of what  seemed to be attempts to frustrate our referendum result during what seems to us to have been a period of British intellectual and negotiating weakness in  2018 and early 2019, which this government has had to spend a lot of time trying to correct.

– And finally some also stems from what we see now. We have been surprised  by the EU’s willingness to resort quite quickly to threats when problems arise  – over vaccines, over fish, over financial services, and indeed over Northern  Ireland. 

I didn’t want to speak about Northern Ireland in any depth, but I do need to respond to Ambassador Michaelis’s comments.

We are spending hundreds of millions on operating the Protocol, and that is the source of the problems, so we take no lectures on this. I am afraid the idea that we could take the  politics out of Northern Ireland and the Protocol is not exactly realistic. We agreed the Protocol to deal with a very particular and delicate situation, and the best thing our European friends can do is to respect this delicacy and to work with us to find a pragmatic and negotiated solution.

So I want to be clear – we don’t wish for difficult relations, we look for this time to pass, we will work to make it better – but it takes two.

Second, a reflection on why Brexit matters so much to us. It’s worth saying perhaps to our German friends that there is no longer any serious debate on the subject in  Britain. No major political party advocates EU membership, and, while a proportion of the public may still regret Brexit, there is no energy behind a rejoin movement.  Overwhelmingly we are now looking forward.

That matters. Those of us who became convinced, publicly or privately, in the years  after 2010 of the need to leave the EU did so not because of some obsessional attraction to sovereignty. We did so because we believed EU membership had been detrimental to the UK, had sapped our energy and ability to solve problems for ourselves, and had stopped us making hard choices and clear decisions about how we wanted to run our country.

I think it’s worth making clear that this is not just a Brexit of the right. We’ve seen perhaps the most significant change in British politics for a generation – a profound  shift towards Brexit, and the Conservative Party, from parts of the country which have traditionally leaned left.

Some are inclined, even now, to dismiss this as a cry of anger against “being left behind”. That is far too dismissive. What we have seen is a call for the country to be  run in a different way, injecting new ideas into the political class, creating alternative possibilities, and crucially, holding politicians to account for different things, against different standards.

The point I want to make is that leaving the EU wasn’t the final goal – it was a doorway, a portal through which we had to pass, the beginning of a journey to national renewal and a repositioning of Britain on the world stage. I think it’s because people sense those possibilities that the mood in Britain is better than many thought it would be.

We think we have made a fairly good start to that renewal process, with a world class vaccination programme and indeed vaccine – as indeed does Germany. The predicted collapse in trade has not happened. We are putting in place a programme of reforms – to subsidy policy, to procurement rules, to agricultural support programmes. We are establishing genuine freeports to encourage investment and rebalancing around the country. We are setting up our own pure scientific research agency, ARIA. On the global stage, we are putting our money where our mouth is on  defence, with spending going up to 2.3pc of GDP, well above the NATO target. And just this week we agreed our first FTA, with Australia, showing as we always predicted that the ability to tailor agreements to our own needs would mean we could  agree them more quickly.

All this is why, for those sitting in our government, it is hard to feel anything other than a profound sense of responsibility to deliver upon the trust bestowed upon us. And if you will forgive me a few personal remarks at this point – it is also why we  must be vigilant. We do have a challenge as we take our programme forward as a Conservative Government. It is to respond to the new political configuration here without falling into the trap of statism or the intellectual fallacy that a big state, high levels of public spending, more regulation, and government-determined goals and investment plans can build sustainable economic growth over time. 

Germany demonstrated this was a false path in the Wirtschaftwunder and I think we could do  worse than refresh our knowledge of the Ordoliberal tradition, weakened though it  may be in the context of broader European policy-making, as we make our plans. 

We must also avoid being too influenced by the current pandemic situation, that Ambassador Michaelis referred to. The pandemic has ushered in a range of measures literally unprecedented in a free society – indeed for the last year or so we have not really lived in a free society.

We now know governments can act decisively when there is a genuine crisis – but we always knew that. I personally don’t want to accept that the levels of state involvement in our lives and in the economy we have seen in the last year are in any way normal. I want to get back to the old normal as soon as we can. To me and to many Brits it is striking that it was in Germany, that has learned to be vigilant about these things, that we saw the first, and still in many ways the strongest, protests against lockdowns. As we emerge from the pandemic, we must not lose our conviction that individual not collective rights are paramount, that living with risk is inevitable, or our belief that free debate and free expression of opinion is the right way forward for a free society.

Of course we 100pc do not have all the answers. As I hope I’ve made clear, I  personally think we have a lot to learn from Germany. What we do have is the ability to make our own decisions, and yes our own mistakes, but also to correct errors and make changes. That is a crucial advantage in developing good public policy.

So, although we are rebuilding our relationships beyond Europe – and as the Integrated Review showed we are going to be putting lots of effort into that – relationships with Germany, and our other great European friends, remain crucial to us. We recognise we have to manage them not just bilaterally but through the EU  institutions – but events like today show that the bilateral remains crucially important.

To conclude – as you may be able to tell I am profoundly optimistic about this country and our future. This is an optimistic government and we believe in the ability of the British people to recover from the setbacks we’ve all faced over the last year and to turn our country into something special. In doing so, we look for friendly collaboration wherever that is possible; with Germany I am confident it is possible; and KW has a huge role in keeping it possible. Thank you.