Theresa May is set to propose a transitional deal with the EU of up to two years in a speech on Friday, a cabinet source has told BBC News.
The PM is also expected to make an “open and generous” offer, potentially worth 20bn euros over the two years.
It would mean the EU does not have to unpick its current budget – so no other EU member loses out from Brexit.
No 10 hopes the speech, which has been agreed by the cabinet but could yet be revised, will speed up Brexit talks.
Mrs May briefed her top team at a marathon two and a half hour cabinet meeting in Downing Street on what she will say in Florence.
- Ben Wright: The Brexit transition options
- Is PM set to make a cash offer to the EU?
- A guide to the Brexit negotiations
- Johnson denies cabinet Brexit split
A government source said that the intention was to make the potential payments conditional on continued access to the single market and some form of customs union which allowed the UK to strike its own trade deals during the transition period, BBC political editor Laura Kuenssberg said.
Mrs May is not expected to say how much the cash offer will be worth, the exact nature of the arrangements for accessing the single market or any conditions attached to the money in her much-anticipated speech – these are subject to the negotiations in Brussels.
Additional long term liabilities, like EU pensions and debts, will also have to be dealt with in the talks to come, so the eventual Brexit bill is likely to be far higher than that 20bn euros (about £18bn) or so.
But, Laura Kuenssberg says, it is hoped in government circles that the prime minister’s offer could help overcome the current political blockage in the negotiations.
Mrs May is also expected to repeat her assertion that the UK will seek its own bespoke trade deal after Brexit with the rest of the EU.
She is therefore likely to rule out seeking an equivalent to the Canada-style free trade deal, preferred by some Brexiteers, and an arrangement like the European Economic Area, where countries retain a full relationship with the single market but have to accept elements of the freedom of movement.
After a week of tensions on the issue of Brexit strategy the cabinet meeting to read and discuss the text of the draft speech ended with Foreign Secretary Boris Johnson and Chancellor Philip Hammond – seen as being at opposing ends of cabinet views on Brexit – emerging from No 10 in a show of unity for waiting reporters.
The view from Brussels
By the BBC’s Adam Fleming
Politicians and officials across the EU will listen to the tone of Theresa May’s speech but they mostly care about the content and its effect on the Brexit talks.
The UK’s offer to pay its membership fees until the end of the seven-year budget cycle is more generous than Britain’s pitch at the last round of talks but less than Michel Barnier wants.
And the media has paid little attention to the impasse over citizens rights, where the EU fears its nationals will have to go through an unacceptable administrative process to stay in the UK after Brexit.
Diplomats point out that talk is fine but the negotiations advance on concrete proposals, written down in legalistic documents.
Brussels officials are also gripped by the political situation in the UK, with one senior figure suggesting the prime minister is too weak to offer anything big and might not even be in her job in two weeks’ time.
They are open to a transition deal but the further it deviates from EU membership, the harder it will be to negotiate in the limited time available.
Debate ahead of the speech has focused on the detail of the time-limited transition period after Brexit, how much the UK will pay as it leaves, and whether it will continue contributing to EU budgets in years to come.
So far, the government has said the UK will honour its commitments but that the days of “giving huge sums of money” are over.
In a speech to the Italian Parliament on Thursday, the EU’s chief Brexit negotiator Michel Barnier said that striking a deal with the UK was “in our common interest” but that only a year remained to come to agreement on the key issues – as six months would be needed for ratification before March 2019.
Speaking in French, he said he was awaiting “clear commitments” from the UK on the issue of guaranteeing EU citizens’ rights in the UK, on the financial settlement and on the Northern Ireland border. Without those issues being resolved in a withdrawal agreement, there would be no transition deal, he said.
“I am convinced that a rapid agreement on the conditions of the UK’s orderly withdrawal, and a transition period, is possible. For that to happen, we would like the United Kingdom to put on the table, as soon as next week, proposals to overcome the barriers.”
The fourth round of Brexit negotiations begins on 25 September, with the UK due to leave the EU in March 2019.