In an interview with Hammond headlined, "British finance minister threatens EU partners", the paper quotes Hammond saying that Britain could be forced to change its economic model if negotiations went badly.
"The British people are not going to lie down and say, too bad," he said, when asked if the UK could slash corporation taxes. "If we have no access to the European market, if we are closed off", then short-term economic damage could follow, but Britain would then be forced to change its model "to regain competitiveness".
In the interview Hammond argued that Britain and the EU should reach a deal allowing reciprocal access to each other's markets -- although he stressed that London could not compromise on regaining immigration control.
London and Brussels should not fight against each other's red lines but work in the space in between to find an agreement on Brexit, the Chancellor of the Exchequer said.
Hammond said Britain had not taken a firm position on post-Brexit EU immigration, but the message from the June referendum vote to leave the bloc was: "we must control our immigration policy".
He said European Union citizens would be free to travel to Britain and do business there -- but the debate was over the right to work, settle and set up business.
"Clearly we need people to come and work in our economy to keep it functioning," he said. But as for having no control, "that has to stop".
British Prime Minister Theresa May is to set out details of the government's Brexit negotiating strategy on Tuesday.
Hammond said Britain wanted market access without Brussels politics.
"We are optimistic that we will be able to reach an agreement that gives reciprocal access to each other's markets. The logic is there," he said.
He hinted that London was ready to push through aggressive cuts to business taxes to ensure British-based firms remained competitive in the face of EU tariffs.
Hammond hoped Britain would remain "in the mainstream of European economic and social thinking", but said it would have to change course "if we are forced".
Britain plans to hand in its two-year notice before April. Hammond said he was expecting to start "substantive negotiations" in the following months.
"We are ambitious to do this as quickly as possible," he said, and "move seamlessly" to the new arrangement in 2019, though there could be an "interim period" before it kicks in.
Hammond said leaders needed to respect that Britain's "history and our destiny" was as a nation focused on the wider world rather than just continental Europe.
He said it was unlikely that Britain would want to rejoin the EU in future, thinking that without the UK, the bloc would move towards further political integration and therefore become less attractive to young voters who largely backed the status quo in the referendum.