November Brexit Deal Hopes Fade as U.K. Ministers Fail to Agree

(Bloomberg) -- U.K. Prime Minister Theresa May’s chances of wrapping up a Brexit deal at a special summit later this month seem to be fading as her Cabinet struggles to agree a way forward, people familiar with the matter said.

A British official indicated the government was less hopeful of clinching a deal in time for a November gathering of European Union leaders, saying it would be a stretch to get the deal done and signed in the next three weeks.

“Don’t be under any illusion there is a lot of work to do,” May’s spokesman James Slack told reporters in London on Tuesday. Ministers have been sent away to work up a fresh proposal on the so-called backstop plan for the Irish border, and could be called back to another Cabinet meeting to discuss it later this week, people familiar with the matter said.

As British ministers fight among themselves over how to break the deadlock in negotiations, companies aren’t waiting around for clarity.

On Tuesday, Schaeffler AG, the German maker of ball bearings, said Brexit was partly to blame as it announced it will shrink its U.K. workforce by half to 500. Stifel Financial Corp. also said on Tuesday it will buy the brokerage operations of Germany’s MainFirst Holding AG, ensuring that the U.S. firm can keep offering financial services in the EU after Brexit.

The U.K. will leave the EU with or without a deal on March 29, 2019. While 95 percent of the divorce has been agreed to already, negotiations are still stuck on the thorny question of how to avoid customs checks on the land border between the Irish Republic and Northern Ireland.

Unless this issue can be resolved, there will not be a withdrawal agreement at all, and the U.K. will crash out of the bloc with no deal. That outcome would cause major economic upheaval and could hit U.K. GDP by as much as 10 percent, according to government forecasts.

May wants to strike a deal on the divorce terms by the end of November in order to allow enough time to get the treaty ratified in the U.K. Parliament -- and to pass the other legislation needed to prepare the country for life outside the union.

But pro-Brexit ministers in the Cabinet still can’t agree with pro-EU colleagues over the nature of a legal guarantee to ensure the Irish border remains open to the flow of goods, whatever future trade arrangements the U.K. makes with the EU.

The proposed guarantee -- known as the backstop -- will keep the U.K. inside the EU’s customs regime on a temporary basis, until a new trade deal can be reached that means it’s no longer necessary. The problem is, the EU wants the backstop to be potentially a permanent option, in case no such trade deal is ever struck.

For pro-Brexit campaigners in May’s Tory party, staying in the European customs regime indefinitely in this way would be a betrayal of the 2016 referendum vote to leave the EU. They say Britain must have the power unilaterally to escape EU tariffs so the country can strike free trade deals with other countries around the world.

At Tuesday’s meeting, the Cabinet discussed the border puzzle -- and in particular how to make sure that the backstop doesn’t bind the U.K. into EU trade rules forever. Work is continuing “across government” on how an exit mechanism might work.

“Where there was a shared view is that it needs to be effective -- that we aren’t in a position where we can remain in the backstop indefinitely,” Slack said.

The mechanism by which the U.K. could leave the customs arrangement with the EU dominated Tuesday’s Cabinet discussion, according to a person familiar with the matter. The option now being considered is “fabulously complicated,” the person said.

Attorney General Geoffrey Cox, who spoke on the matter, and Brexit Secretary Dominic Raab will work on further details of the proposed arrangement before it is presented to another meeting of Cabinet, the person said.

May still wants to get an agreement within weeks, and certainly before the country leaves the EU next March. But Slack said she told her ministers that a deal “won’t be done at any cost.”

To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net;Robert Hutton in London at rhutton1@bloomberg.net;Tim Ross in London at tross54@bloomberg.net

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Emma Ross-Thomas

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