Cabinet at war after May’s humiliation in Salzburg

On Friday morning, as Tory MPs discussed the humiliation that had befallen their prime minister hours earlier, the party’s febrile mood tipped over into outright panic. Rumours swirled that a cabinet minister was about to walk out. Others talked about seizing the moment to force Theresa May into a decisive break from the EU and a hard Brexit.

The news that the prime minister’s team was planning a hastily arranged statement in Downing Street was the final straw for some, who had palpitations about the prospect of another election. “The thought of another Theresa May manifesto is enough to make anyone reach for the bottle,” said a former minister.

The outbreak of fear and loathing was the direct result of a disastrous diplomatic week for the prime minister, during which her Chequers Brexit proposals were rejected in brusque, politically brutal style at a meeting of EU leaders in Salzburg.

By adopting a similarly combative tone in her Friday statement hitting back at Brussels, she has made the task of securing a deal even more difficult, some of her ministers fear. One senior minister said: “It would seem she is gambling all by [rejecting the options on the table], but urging once again the bespoke deal for the UK or bust.”

So how did it come to this? Just a day earlier, things had seemed relatively calm. On Thursday morning the European commission president, Jean-Claude Juncker, described May’s address to leaders at the previous evening’s dinner as polite. A meeting between May and the Irish prime minister, Leo Varadkar, in Salzburg’s Sheraton Grand hotel was said to be non-confrontational. Meanwhile, in Dublin, David Lidington, the cool-headed cabinet office minister, was having a good meeting with the Irish Brexit minister, Simon Coveney.

But appearances can be deceptive. In truth, the seeds of the Salzburg crisis had already been sown at the leaders’ dinner the previous evening.

Shortly before midnight on Wednesday, after a lengthy and inconclusive debate over migration, May gave her eight-minute address on the state of the Brexit talks. It was listened to in silence. But the gathered leaders and diplomats had their thoughts, even if they were not sharing them. May had brought her domestic politics to the table. “Did she want to hear about everyone else’s domestic problems?” asked one person present.

The prime minister had read from her op-ed that morning in the German newspaper Die Welt in which she warned that the EU would have to change course. And she had repeated a mantra on Chequers that is an anathema to the EU: take it or leave it. Over the following 24 hours, after further missteps, including further prevarication over the crucial, knotty issue of the Irish border, the answer from the bloc could not have been clearer. They were not taking it. Just in case the message hadn’t been received, a photograph was posted on Donald Tusk’s Instagram account of the European council president offering May some cake. “A piece of cake, perhaps?” it read. “Sorry, no cherries.”

Friday’s hastily arranged statement in Downing Street turned out to be a demand from May for respect from the EU, and a request for the commission to come up with its own counter-offer in response to her Chequers plan. The act of defiance played well at home, but it initially alarmed some diplomats. The bellicose language, and entrenched position on the Irish border problem, appeared to some to be making a no-deal scenario more likely.

Eurocrats of longer standing, however, soon saw an opportunity. May had demanded a counter-offer. Her suggestion that it was Chequers or nothing, they thought, had been implicitly dropped. It had always been the EU’s intention to have something on paper from their side on the political declaration about the future trade deal by the October leaders’ summit, and now this could be billed as a counter-offer.

But the Irish question remains. So many of the problems facing May come back to the so-called backstop proposal put forward by the government in December, which effectively means that in the event of a no-deal exit there would be no change at the Irish border – even if that means keeping Northern Ireland effectively inside the EU’s single market and customs union.

EU officials said they would need to wait until the UK formally delivered its paper on the backstop solution for Northern Ireland to see where that discussion could go. But one admitted: “On customs, that is where the fudge ends. It is the essence of Brexit.” Salzburg is likely to be just the first major squall of the autumn.

So what happens to May’s plans? Despite using her Downing Street address to rule out a change of course, more compromise will be needed to avoid no deal.

One growing group of Tories, including some loyalists who had backed May’s Chequers compromise, has moved towards supporting a Norway-style agreement, at least on a temporary basis, that would keep Britain inside the EU’s single market, with customs union membership tacked on.

“If it is a fact that Chequers proves un-negotiable with the Europeans, if you don’t even get to that next stage, then I think the next obvious step is Norway,” said one May ally. “If you are a Brexiter, you say ‘We will then do a long-term trade deal’. Or you may get into Norway and think, ‘This is as good as it gets’. That’s the most likely next step.

“It would be easier to do if it was not the government’s plan, but one drawn up by parliament. Norway would be the one you could assemble a cross-party majority for.”

But other Tories are pulling in the opposite direction. A major bid will be launched by Brexiters on Monday for a Canada-style free trade agreement, which would cause more disruption but would leave the UK free to secure trade deals and set more of its own standards.

Some in the cabinet are pushing for this “Canada-plus” option – but those concerned about such a move say it fails to deal with the Northern Ireland issue and would effectively create a border in the Irish Sea. That could damage the union and be rejected by the DUP, whose support is propping up May’s minority government.

If there is a deal to be done based on the Chequers proposals after all, figures in Whitehall and Brussels say it would require effectively keeping the UK inside the EU’s customs union for goods. That would allow the UK to sign trade deals relating to services.

The stakes are high in the cabinet. A group of ministers – Esther McVey, Penny Mordaunt, Andrea Leadsom and Baroness Evans – has been leading the charge in making the Chequers plan “respect the referendum result”. Could they tolerate another compromise? It is not clear. Sources close to McVey denied she was already on the verge of resigning. At a meeting of the cabinet on Monday some of the frustrations will be played out. The pragmatists in the cabinet are expected to say that a Canada-style deal would damage trade while also necessitating a border in the Irish Sea – damaging the UK’s unity.

“The problem with a Canada-style free trade agreement is it doesn’t solve the Irish border,” said one cabinet minister. “Those advocating that approach need to face up to the consequences for the union.” Another said: “Talk of going down the Canada-plus route is very dangerous. Putting Northern Ireland in the departure lounge from the UK would raise long-term questions about Scotland. Nobody voted Brexit to break up the UK.”

As for May’s own future, she now has to navigate a Tory conference in which the vast majority of grassroots attendees oppose her Chequers plan. Since Salzburg, figures on both the Remain and Leave wings of the party believe she now stands less chance of being the person who actually delivers Brexit – raising the prospect of a leadership election before 29 March.

“If things are still untenable in a week, surely someone has to play their hand and take her on,” said an ally of Boris Johnson, tipped as the most likely rival. “The challenge for [Boris] is being the first mover. But at some point, you go beyond the point of no return.”

Such is the crisis that some Tories have again been discussing the likelihood of an election in November, provoked by the scenario of no Brexit plan being able to command a majority in the Commons. Downing Street sources deny such planning is taking place – but senior figures also agree that, should the Commons reject all options, anything could happen. Labour is desperate to force an election, but even Tory MPs concerned about Brexit say they would never back an election and topple the government. They may, however, back a new referendum on the final Brexit deal.

Is there time to put things back on track? “It has been a bad week for pragmatists on both sides, but there’s still just enough time to put that right,” one senior minister concludes. “But it’s getting very tight.”

Hard Brexiters/ No-dealers

The hardliners are led by Jacob Rees-Mogg, left, whose European Research Group is the trade union for a hard Brexit. The former minister David Davis and Stewart Jackson are fully signed up members of this tribe. They want the UK out of the EU at almost any cost, even if it means no deal.

May loyalists

They are a diminishing band, but there are plenty of ministers, such as James Brokenshire, the housing secretary, above, who was prominent on the media last week backing the PM during her darkest post-Salzburg hours. They owe their positions in government to her and will stick with May to the end.

Hardline Remainers

Tory Europhiles are appalled that the UK is leaving the EU. They have tried to amend Brexit bills to ensure a softer landing after Brexit. Most would probably back a second referendum in the event of no deal. Anna Soubry, left, and Dominic Grieve are among them. Kenneth Clarke is another, though he hates the idea of referendums.