Theresa May could legally refuse to pay an estimated 60billion 'bill' to exit the European Union, members of the House of Lords have concluded.

But the high-risk move could have massive political and economic costs, they warn.

Last month the UK’s former ambassador to the EU told MPs that other European leaders were planning to demand that the UK pays between 40 and 60bn euro.

Countries across the continent believe that the UK has financial responsibilities for everything from planned multi-billion pound infrastructure projects to pension liabilities that do not end with Brexit.

But Brexiters have suggested that the UK tells Brussels it will not pay.

The new report, by the House of Lords EU Financial Affairs Sub-Committee, also criticises Mrs May’s threat to walk away from the negotiating table if the terms of the 'divorce settlement' with Brussels are too low.

The Prime Minister has said that no deal would be better than a bad deal.

But critics warn that would force the UK to rely World Trade Organisation (WTO) rules, which the CBI says would place tariffs on 90 per cent of the products British firms export to the EU.

In their report, peers said that both sides “should recognise the gravity of a no-deal Brexit".

Failure to reach an agreement on the UK’s ''exit bill' “will undermine the Government’s aim to negotiate market access on favourable terms”.

The UK would be be under “no enforceable obligation” to make financial contributions to the EU budget after Brexit, it finds.

But refusing to pay would “severely damage” the prospects of reaching friendly agreement on wider issues, including access to European markets.

Sir Ivan Rogers, who warned of the potential for a bill of 60 billion euros, also told MPs that negotiations were likely to descend into "name-calling" and "fist-fighting" before any deal was reached.

He explained that the thinking in Brussels was that the "implications for the UK of walking away without any deal on the economic side and without any preferential arrangement and walking into a WTO- only world are - from their perspective, which may be a misreading of us - so unpalatable that we won't do i

Baroness Falkner of Margravine, the chair of the EU Financial Affairs Sub-Committee, said: "The UK appears to have a strong legal position in respect of the EU budget post-Brexit and this provides important context to the Article 50 negotiations.

"Even though we consider that the UK will not be legally obliged to pay in to the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations. The Government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations.

"The forthcoming negotiations will be more than just a trial of strength. They will be about establishing a stable, cooperative and amicable relationship between the UK and the EU. This will not be possible without good will on both sides."

The report also warns that estimates of the UK’s potential ‘exit bill’ are “hugely speculative”.

Meanwhile, Brexit Secretary David Davis said that a future free trade agreement the UK seeks with the European Union would be "massively important to both sides".

Mr Davis was speaking after he met the Slovak prime minister Robert Fico.

The arch-Brexiteer said that the UK exports goods worth 230 billion euro (£200 billion) to the EU while EU nations export goods worth 290 billion euro (£250 billion) to the UK.

Mr Davis said a recent investment by Jaguar Land Rover in Slovakia is "a component of that co-process... we want to preserve, enlarge and encourage".

He added that the Government wanted to assure Slovak citizens in Britain "they will have equally good arrangements in the future as they have now".

But Mrs May has said that she cannot pledge that EU citizens will be allowed to stay in Britain after Brexit, until other European countries make similar promises about UK nationals.