The London mayor said politicians “must now confront the hard truth – Brexit isn’t working”.
In a major speech to political and business leaders, Khan said it was time to end the “vow of silence” on the damage he said leaving the EU has caused to the British economy.
His comments put him at odds with Labour leader Starmer, who has insisted that rejoining the single market would not boost economic growth.
Speaking at the Mansion House London government dinner, Khan said: “Brexit has already reduced our GDP by 5.5%, reduced investment by 11% and reduced goods and services trade by 7%.
“The hard and extreme Brexit we have is a drag on growth, investment and trade. It’s holding Britain back. Fixing it would mean the recession would be less painful and less prolonged.
“All told, the estimated cost to the Treasury in lost tax revenues due to Brexit is £40 billion. We simply cannot forgo £40 billion of potential investment in our health service. So, repairing our relationship with Europe would mean we can better support the NHS.”
“Britons are also paying an extra £6 billion to eat because of Brexit. That’s £210 added to the average household’s supermarket bill over a two-year period.”
The mayor added: “After two years of denial and avoidance, we must now confront the hard truth: Brexit isn’t working. It’s weakened our economy, fractured our Union and diminished our reputation. But, crucially, not beyond repair.
“We need greater alignment with our European neighbours – a shift from this extreme, hard Brexit we have now to a workable version that serves our economy and people.
“That includes having a pragmatic debate about the benefits of being a part of the customs union and the single market.”
Asked in December whether the UK should rejoin the single market, Starmer said: “No, at this stage I don’t think it would, and there’s no case for going back to the EU or going back into the single market.
“I do think there’s a case for a better Brexit. I do think there’s a very good case for making Brexit work.”