Brexit Bulletin: Cornered and Outgunned

(Bloomberg) -- Today in Brexit: May’s leadership is in crisis after her inner cabinet shot down her plan for the U.K.’s future relationship with the EU. 

The Brexiteers are claiming victory and Theresa May is in a corner. In an unusual show of defiance, her inner cabinet on Wednesday rejected her proposal for a future customs deal with the European Union.

The group split six-five against her plan, which is hated by Brexit backers because it involves a close and complicated relationship with the bloc, according to four people familiar with the meeting. One British official said that with May’s leadership now in question she could have as little as a week to get a compromise, Tim Ross reports. Otherwise she may face the stark choice between staying in the existing EU customs union or leaving the bloc without a deal.

May’s position is made more perilous by the fragile parliamentary arithmetic. On one side she has Brexit-backing ministers and lawmakers demanding a clean break with the EU. If she defies them, ministers will probably resign. Lawmakers led by arch-Brexiteer Jacob Rees-Mogg have threatened to withdraw their support for her minority government. But on the other side, pro-EU Conservative lawmakers have the ability to defeat her in Parliament should she cave to the hard-liners. Whatever final Brexit deal she strikes has to be approved by the House of Commons. If she keeps Britain in the customs union, she could be in the uncomfortable position of having to rely on Labour votes for support. 

Brexit Bulletin: Cornered and Outgunned

At the meeting, two proposals for the future customs setup were put forward: the one May backed and a much looser arrangement that relies on technology to ease the flow of cross-border trade and is favored by Brexit supporters. The EU has rejected both of the proposals, but the looser one poses more problems for the Irish border as it wouldn’t be good enough to avoid a policed frontier emerging on the island. That’s a deal breaker for Ireland and the EU, and the border issue remains one of the key obstacles to an overall agreement being reached.

Tipping the balance in the meeting was newly appointed Home Secretary Sajid Javid, a Brexit backer who replaced pro-EU Amber Rudd on Monday after her resignation Sunday following an immigration scandal. May might be regretting her appointment of the rising star who dared to defy her on his third day in the job.

Ministers agreed there were problems with both models and asked for more work on them. They also agreed that the government’s red lines – on leaving the customs union and avoiding a controlled Irish border – conflict with each other and it will need to decide which are most important, according to two people in the room.

It’s the second day of the latest round of talks in Brussels today, but it’s clear May’s most pressing negotiation is with her government back in London.

Today’s Must-Reads

  • Jacob Rees-Mogg delivered an ultimatum to May, but his threats could bring unintended consequences, Rob Hutton writes.
  • The prospect of a no-deal Brexit is real again. EU chief negotiator Michel Barnier is ramping up the rhetoric and officials worry in private that the risk of a messy divorce is rising.

Brexit in Brief

Tenth Defeat | The House of Lords secured yet another defeat of May’s Brexit policy, voting for an amendment to ensure that no policed border emerges in Northern Ireland after Brexit. Former Conservative Party Chairman Chris Patten said the government was in danger of “blundering into the politics of Northern Ireland with a policy that is sometimes clueless, and sometimes delinquent, with a can of petrol and a box of matches in the other hand.”

Who Fills the Hole | The EU has started fighting over its next budget and how to plug the hole left by Brexit, given that the U.K. is the second-largest financial contributor. It’s looking tense. Dutch Prime Minister Mark Rutte said the 1.14 trillion-euro ($1.37 trillion) spending plan is unacceptable. This is the reason transition is meant to end in December 2020 and any extension would be tricky: the new seven-year budget starts in 2021.

Brexit Bulletin: Cornered and Outgunned

Tech Company Moves | Aptiv Plc plans to increase Dublin staff to 250 by the end of 2018 from 150 now, as it moves its global headquarters to the Irish capital.

Polite Reminder | The Dutch market regulator told financial institutions hoping to be licensed in the Netherlands in time for Brexit day on March 29, 2019, to apply “as soon as practicable but preferably no later than July 1, 2018.”

Star Wars | Chancellor of the Exchequer Philip Hammond has proposed the country should seek retribution if the EU blocks British companies from sensitive parts of the Galileo satellite navigation system after Brexit, the Financial Times reports. Officials are considering disrupting the transfer of sensitive encryption technology, it says.

Coming Up | Brexit Secretary David Davis takes questions in Parliament at 9:30 a.m. In England, local elections are held.

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To contact the author of this story: Emma Ross-Thomas in London at erossthomas@bloomberg.net.

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