Theresa May’s cabinet appears to be heading for a showdown next week over what kind of trade deal the UK should aim for with the EU. As the meeting approaches, the Conservative party’s soft Brexiters are stepping up pressure for Britain to remain as closely aligned to the EU as possible.
Last week at Davos, Philip Hammond, the chancellor, said the aim of UK policy should be to leave the British and EU economies “very modestly apart”. The intervention, which infuriated hard Brexiters, was pointed and deliberate.
That was followed by the leak of a briefing paper on the economics of Brexit that had been secretly given to ministers. As I noted yesterday, the critical point about this survey is that it shows how negligible the long-term benefits would be of UK free-trade agreements with the US, China and other major non-EU economies.
That, in turn, blows a hole in the hard Brexiters' argument that Britain should leave the customs union in order to conduct free-trade deals with non-EU states.
On this morning’s Today programme, George Osborne chose this moment to throw his weight behind these arguments. The former chancellor said it was not possible to reverse the Brexit decision altogether. But he argued in favour of Britain becoming a member of the European Free Trade Association (Efta) — a soft Brexit option.
“We should look clearly at the costs and benefits of . . . leaving the customs union and doing less trade with Europe versus what we might gain from doing a trade deal with America,” Mr Osborne said. “At the moment the sums don’t stack up for that kind of decision.”
So the soft Brexiters are marshalling their forces — and the big question, of course, is where the prime minister stands on all this. Is she finally prepared to abandon the red lines in her October 2016 and Lancaster House speeches? Or will she continue muddling through with vague aspirations about a “deep and special” trade deal?
One problem, of course, is that any move to keep Britain in a customs union with the EU would face a ferocious backlash from the 60 or so Tory MPs on the hard Brexit European Research Group. Their new leader Jacob Rees-Mogg is leading the ERG in a much more aggressive manner than his predecessors.
Number 10 is obviously aware of this. And it may be that this morning’s decision by Mrs May to take a hard stance with the EU on the transition — challenging Brussels over the rights that EU citizens should enjoy during a Brexit transition period — is an attempt to throw some red meat in the ERG’s direction. Whether such a tactic will work is far from clear.
A second problem with staying in a customs union is that Britain will not be able to sign non-EU trade deals — and Liam Fox, the international trade secretary, will end up without a job.
However, on the prime minister’s China trip today, Mr Fox appeared to emit an emollient tone. Asked if Britain could still increase trade with China despite remaining inside a customs union with the EU, Mr Fox said: “Self-evidently, we can do it in a customs union because we can do it now while we are still in the EU.”
We shall soon see what Mrs May decides. But as James Forsyth argues in the Spectator, the prime minister's dithering is now putting her own leadership in danger. As he puts it:
“What should worry No 10 most about the past ten days is how many level-headed Tory MPs are beginning to think it is worth rolling the dice; that while a change of leader might be messy, things can hardly be worse than they are now.”
Muddling through no longer seems an option for Mrs May. As the Spectator argues, she must now take a decision — or resign.