The U.K’s new Prime Minister, Theresa May (Photographer: Chris Ratcliffe/Bloomberg)

May Cornered by Brexit Foes as Crunch Parliamentary Vote Looms

(Bloomberg) -- Theresa May is surrounded.

On one side, the U.K. prime minister has the European Union, sharpening its knives to defend the club of 27 remaining members against British “cherry picking” during Brexit talks. On the other side is her own Conservative party, split into two feuding tribes, either one of which could topple her from power.

It’s the domestic battle that comes to a crunch again in Parliament on Monday, with crucial clashes that will decide how much power legislators get to shape the final Brexit deal.

Euroskeptics in May’s Tory party fear that the pro-EU wing, led by former attorney general Dominic Grieve, will win. Some privately warn they could move to oust May if Parliament votes this week to give itself the ability to force her back to the negotiating table, rather than allowing Britain to leave the EU with no deal.

The most ardent Brexit backers would be happy to exit without an agreement, while Grieve warned on Sunday he’d oppose that, even if it led to the “collapse” of May’s government.

“As Parliament gradually assumes a bigger role in the process, the debates have made a ‘no deal’ exit next March less likely and a softer Brexit more likely,” Mujtaba Rahman, managing director at Eurasia Group, said in a note. “As a result, a leadership challenge to Theresa May has also become more likely, because hardline Brexiteers fear they are being outmaneuvered by the prime minister who tiptoes towards a package acceptable to the soft Brexit majority in Parliament.”

In the year since May unexpectedly lost her majority in the U.K. election, the pro-EU faction in the Conservative party has been gaining ground. It won the argument for a “status quo” transition period to allow time for businesses to prepare for life outside the EU.

May has concluded she has no mandate for an extreme Brexit. Instead, she’s signaled a willingness to soften her original red lines, allowing the EU’s common tariff rules to continue to apply as a backstop plan to avoid a hard border in Ireland, accepting an ongoing role for the European Court of Justice, and tying the U.K. to EU regulations in key sectors such as chemicals and aerospace.

Soft Brexit

This trend toward a soft Brexit has alarmed euroskeptic campaigners including Foreign Secretary Boris Johnson, who fears the U.K. could end up forever in the EU’s orbit, rather than breaking free to strike trade deals with other countries around the world.

May can see the danger. Anti-EU Tories have hastened the downfall of her two predecessors as Conservative prime ministers: David Cameron, who lost the 2016 EU referendum to the campaign Johnson led, and John Major, who presided over a party split over Europe before losing power to Labour’s Tony Blair in 1997.

Against this backdrop, May’s making a concerted effort to reassure Brexiteers that she’s one of them, despite having campaigned to stay in the EU two years ago.

On Sunday, the premier insisted the U.K. will have a “bright future” outside the EU, as she promised she’ll deliver the independent trade policy Brexit supporters want.

Big Red Bus

May used an interview on the BBC’s “Andrew Marr Show” to align herself with the most famous pledge of the pro-Brexit campaign: using money that will no longer be spent on EU membership to inject billions of pounds into the state-run National Health Service.

Her comments were welcomed by Johnson, who toured the country during the 2016 referendum battle in a red bus bearing the famous pledge to stop sending 350 million pounds a week to the EU and “fund our NHS instead.”

But Paul Johnson, director of the Institute for Fiscal Studies, said the government knows the U.K. will be worse off outside the EU.

“There is no Brexit dividend,” Johnson said, pointing out that a 2-percent income tax increase might be required to pay for the NHS funding increase. May hinted in an interview with LBC radio that “fair” tax increases would be part of the answer.

©2018 Bloomberg L.P.