Theresa May is facing renewed cross-party pressure to accept membership of the European Economic Area (EEA) or risk defeat in the Commons.
Peers vote on Tuesday night on a series of amendments as officials work to try to find a deal on May’s preferred option of a customs relationship with Europe that is acceptable to Brexiters and remainers in her cabinet, as well as MPs and EU negotiators.
The policy paper rejected by the inner cabinet on the Brexit subcommittee last week has been withdrawn for further work and will not be discussed at this week’s regular meeting.
A Downing Street source said: “It was agreed on Wednesday that more work needed to be done to flesh out the general principles agreed – no hard border and as frictionless trade as possible.
“We realise the urgency. But as Greg Clark [the business secretary] said on Sunday, it is a crucial question to get right.”
The prime minister also came under pressure from Boris Johnson, who is currently in Washington trying to persuade Donald Trump to stick with the Iran nuclear deal. In an interview with the Daily Mail, the foreign secretary dismissed May’s customs partnership proposal as “crazy” and said it would create massive bureaucracy.
The scheme involves the UK levying border tariffs on imports on behalf of the EU and refunding them where the imported goods stay in Britain. Johnson also condemned any system that prevented the UK from establishing its own trade policy and negotiating deals with non-EU countries, which is also the principle objection of Conservatives led by Jacob Rees-Mogg in the European Research Group.
Meanwhile, the Irish government is concerned that many MPs and peers still believe that Dublin will back down at the last minute on the hard border.
One parliamentarian who visited Westminster recently said he was surprised by how confident MPs were that there could be a frictionless border between north and south without a customs union. “Both May’s proposals for maximum facilitation and a customs partnership have been rejected by [the EU negotiator] Michel Barnier as magical thinking,” he said.
A source close to the taoiseach, Leo Varadkar, said: “Westminster is mistaken if it thinks the Irish government will move. And it has no understanding of Leo Varadkar. He is someone who will do the right thing for Ireland. They think we’ll get to the last point of the negotiations – and the border will be the last thing – and we’ll move, and we won’t.”
He insisted that the EU would defend Irish interests as fiercely as Dublin, but the Democratic Unionist party leader, Arlene Foster, said the EU was being unrealistic, while Britain’s former ambassador to Washington, Sir Christopher Meyer, accused the EU of putting the Good Friday agreement at stake by “weaponising” the border issue.
Tuesday’s amendment to the withdrawal bill has been tabled by the Labour peer Waheed Alli in a move that is infuriating party managers.
They say the Commons already has the chance to influence the detail of the final divorce arrangements because of an earlier amendment and fear the extra vote could jeopardise a move to remove the time and date of Britain’s departure from the EU from the face of the bill, which has nearly completed its passage through the Lords.
The vote brings the simmering tension in the Labour party over its stance on Brexit back into the open. Chuka Umunna, the Labour backbencher who jointly chairs a cross party pro-Europe group with the Tory MP Anna Soubry, says it is time for Labour to be clear about where it stands.
“The party must pick sides,” he said. “To oppose the single market is to be aligned with Jacob Rees-Mogg.”
In an article in the Independent, Umunna argues that it is impossible to meet the party’s six tests on the Brexit deal without membership of both the customs union and the single market.
The new round in the increasingly bitter battle over Britain’s future relations with Europe was triggered by the business secretary setting out how devastating customs checks would be for major employers such as the car industry.
Clark said: “It’s an area in which we are strong, we are growing, the world is looking to our industrial strategy to the innovations that we’re making there. So this requirement to do what it takes to get that frictionless – minimum of frictions, is something that we’ve made a public commitment to and we need to make sure that we get that right.”
Clark warned that thousands of jobs would be at risk without frictionless trade and insisted the customs partnership was still under discussion. His intervention was taken as a bid licensed by Downing Street to revive a project that Brexiters outside cabinet believed they had forced off the agenda. Rees-Mogg immediately claimed “project fear” was being revived.
On Monday, another leading Brexiter, Michael Gove, praised an intervention on Twitter from Open Europe’s director Henry Newman, who argued that the customs union issue had been comprehensively debated and rejected in the referendum.
On the remainers’ side, the former cabinet minister Nicky Morgan said some Brexiters were behaving like toddlers. Writing on Conservative Home, Morgan said they were wrong to believe a customs union was being proposed only as a way of avoiding Brexit altogether. She insisted the only question was how to leave andwarned that the local election results appeared to show a party losing more and more support among younger voters and those who had backed remain.
It has also emerged that the international trade secretary, Liam Fox, is in a stand-off with the chancellor, Philip Hammond – a leading remain voice in the cabinet – over his departmental budget.
According to the Financial Times, Fox has been told he will have to lose hundreds of officials who are employed overseas to support exports in order to focus on the Brexit process and the trade promotion budget is to be cut by 10%.
The chancellor is under pressure to find enough slack in the budget to ease the squeeze on public services. He is also one of the principle advocates of a Brexit deal that remains as close as possible to the EU in order to protect British industry and jobs.
Fox’s department has a relatively small budget by Whitehall spending department standards. About £400m is spent on policy development, negotiators and overseas trade promotion.
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