Mount Brexit threatens to blow as May calls cabinet to Chequers

Tectonic plates are grinding ominously underneath a 16th-century manor house in Buckinghamshire. As Theresa May locks her cabinet away at Chequers on Thursday to agree an escape plan, the sharp uptick in seismic activity suggests Mount Brexit may be about to blow.

Every day brings a new tremor. First it was David Davis warning of “Mad Max dystopia” if colleagues light a bonfire of EU red tape. Then the proponents of this scorched earth approach fired back a “ransom note” of new demands. Now the optimistically-named Department for Exiting the EU has appeared to suggest it would rather remain in indefinite purgatory than commit to an end date for transition out of the bloc (for now).

Staying in the single market and customs union

The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election.

The Norway model

Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules.

The Canada deal

A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far.

No deal

Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organization rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish bilateral agreements to deal with the consequences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

With steam venting from every crack, the temptation is to focus on the reaction of the Brexiters for signs of terminal meltdown. It is true that almost everything promised by leavers during the referendum has evaporated in recent days – no escape from EU rules, little or no say over new ones, no end date in sight for what Jacob Rees-Mogg has called “vassal state” status during transition.

For all the huffing and puffing, however, there is little else that Rees-Mogg and fellow members of the European Research Group can do but stand by the prime minister’s side during this tumultuous time. Although 62 backbenchers signed the letter calling on her to stick to the principles of Brexit, their bigger worry is that it won’t happen at all if they don’t give May some room for manoeuvre. A closer reading of their demands reveals only the desire to preserve her “ability to change laws and rules once we leave” - a formulation not that far removed from the “managed divergence” the prime minister is planning to try to sell to an even more sceptical audience in Brussels.

Controlled outgassing at Chequers may not be enough to reduce pressure from elsewhere in the fractured Conservative party. Tory remainers led by Ken Clarke and Anna Soubry will attempt to force a further softening of the government’s already viscous Brexit strategy in two weeks’ time by calling for Britain to stay in a customs union with the EU. The second of their two amendments to the upcoming trade bill threatens to explode spectacularly if they can garner enough support.

The ingredients are there. As fellow “mutineer” Dominic Grieve established before Christmas, there are enough sceptical Tories in parliament to sabotage any Brexit legislation if they join forces with opposition MPs. Until Labour’s own Brexit away-day this week, it was unclear whether its leadership would bow to pressure for a clear position on Britain remaining in a customs union. Now Jeremy Corbyn has spelled it out: Britain will “have to have a customs union” after Brexit, he said on Tuesday.

Inside the EU, both Ireland and Northern Ireland (as part of the UK) are part of the single market and customs union so share the same regulations and standards.

The only way to avoid a hardening of the border after Brexit is to ensure regulations and standards on both sides remain more or less the same in areas like food, medicines and so on.

This might imply a permanent acceptance of EU rules – something that would be anathema to hardline UK Brexiters and the DUP, who reject anything that would "decouple" the North from the UK.

David Davis told parliament that regulatory alignment would not mean adopting exactly the same rules as the EU but "mutually recognised" rules and inspections.

However, an official in Brussels countered that regulatory alignment would mean that the UK would have to implement rules from Brussels without having any influence over them.

What is the government’s plan for ‘regulatory alignment’?
Davis says the UK could continue to follow some rules of the EU’s single market. This would help avoid a hard border, but would also limit the UK’s ability to diverge from EU regulations.

What does the EU think?
Davis thinks the UK and EU can agree to meet the same aims, while achieving them in different ways. The EU believes this could see its standards on workers’ rights and the environment undercut.

Can it even work?
Parliament cannot bind its successors. This principle would mean a deal would never be completely secure for more than five years – putting its feasibility in doubt.

The implications of this have yet to sink while all attention has been on the ERG letter and transition. Remaining in a customs union may make sense from the perspective of preserving the economy or peace in Northern Ireland, but it would rule out the swashbuckling global future promised by Brexiters who want to strike new trade deals independently of Brussels.

No role for Liam Fox or his department for international trade. Yet more ammunition for Rees-Mogg’s claim that post-Brexit Britain will have less, not more, influence over its destiny. The sense of betrayal could dwarf the row over whether voters were right to expect £350m a week for the NHS.

All of this before where we find out whether Brussels is prepared to go along with May’s attempt to defuse the situation. Every indication suggests her compromise proposal for managed regulatory divergence is dead on arrival as far as Michel Barnier and EU leaders are concerned. Having your cake and putting some aside to eat later is still a long-term logical impossibility in their eyes. Almost as hard to swallow as realising that Brexit may not mean Brexit after all.