Lord Mandelson: The UK government is in 'turmoil' over Brexit
Mandelson, the former business secretary who played a key role in creating New Labour alongside Tony Blair, said the government is reluctant to reveal its Brexit plans because it is still negotiating with itself.
"We have not the faintest idea because the government is negotiating with itself and hasn't begun negotiating with anyone else, and that won't be the case until sometime next year," he told the Royal Television Society London Conference which BI attended.
"Behind the appearance of calm, behind those closed Whitehall doors, there is tremendous turmoil going on."
Mandelson, who campaigned for Britain to remain in Europe, said there are two camps in cabinet arguing over a so-called "hard Brexit" and a "soft Brexit."
The former would involve a quicker, cleaner departure from Europe, with Britain leaving the single market and ending the free movement of people. While the latter would be much more complicated, involving collaboration with the EU on issues like trade.
"I derive some encouragement from that because positions and different approaches are still being contested.
"Government will have to chose whether it's going to go the doctrinaire route, by which I mean a clean, clear break, as firmly and quickly as possible," Mandelson said.
"Or the more the pragmatic approach, which inevitably I favour, which could result in our creating an entirely new, positive, cooperative relationship, spanning all areas of economic activity between ourselves and Europe."
Mandelson added that he has concerns that ministers would be prepared to give over ground on certain economic issues in negotiations with the EU, in exchange for control over freedom of movement. "It would be taking Britain to hell in a handcart," Mandelson argued.
The former politician, who now runs consultancy firm Global Counsel, added that Brexit negotiations are "the most complex policy exercise in post-war Britain."