The UK needs to be better prepared for a "no deal" Brexit to show Brussels there is a "credible" alternative should the negotiations fail, a former Bank of England governor has said.
Lord King of Lothbury said failing to agree a trade deal with Brussels was "not the first preference of anybody", but more work needed to be done to show the European Union that the UK was serious about walking away if there was no agreement.
Prime Minister Theresa May has insisted "no deal is better than a bad deal", indicating the UK would leave the EU and rely on World Trade Organisation rules after Brexit if what is on offer from Brussels proves unacceptable.
Lord King said: "If you are going to have any successful negotiation, you have got to have a fallback position which the other side understands and believes is credible.
"So we need to able to say if we can't reach an agreement we will nevertheless leave and we can make it work."
He added: "It's not the first preference of anybody, I'm sure. But it's got to be a credible fallback position otherwise those negotiating on the other side will not take any notice of what we would like to achieve in the negotiations - why should they, if we had absolutely no alternative but to give in to what they demand?"
The crossbench peer - who led the Bank as Sir Mervyn King from 2003 to 2013 - said Brexit debate had seen both sides become "very extreme" and even now much of the press coverage was "hysterical".
He told BBC Radio 4's Today programme: "This ought to be something that people ought to be able to agree on, irrespective of whether they are in favour of Brexit or not, because we are where we are, and we are in a negotiation and it's important that the negotiation succeeds.
"But it cannot succeed without a credible fallback position and that is something which I think is a practical thing that the civil service ought to be taking a lead on.
"It's do-able proposition if we start now. We've probably wasted a year but we need to be much further along the road to making that a credible fallback position."
Asked whether hardship was a price worth paying for leaving the European Union, Lord King said: "I don't know what the economic consequences of Brexit will be, that's the only honest answer."
Brexit minister Steve Baker has confirmed the Government was preparing for all outcomes of the Brexit talks, including the "unlikely" scenario of failing to strike a deal with Brussels.
In a letter to Labour MP Chuka Umunna of the Open Britain campaign group last month, Mr Baker said: "In relation to a 'no-deal' scenario, any responsible government would be prepared for a range of possible outcomes from the negotiation, and this is what we are doing."
Nick Timothy, Theresa May's former joint chief of staff, insisted the Prime Minister was still prepared to walk away without a deal.
He told the Daily Telegraph: "It would be a bad thing if we got into a situation where there was no deal for all concerned, but there are circumstances where Britain would have to be prepared to walk away. 'No deal is better than a bad deal' isn't just a slogan, it means something."
Liberal Democrat leader Sir Vince Cable said: "Anyone who has been following the Brexit debate knows that Mervyn King is a highly respected economist who deserves to be listened to.
"Not unreasonably he says there needs to be a plan B. The problem is that the government doesn't even have a plan A.
"He is right to question why ministers have wasted an entire year arguing among themselves with Theresa May wanting to leave the single market and Philip Hammond sensibly wanting to stay in.
"If we are to have a plan A, let alone a plan B, ministers need to act, and fast.
"We can't expect civil servants to solve the problem – they need political leadership, and so far there has been none."