Theresa May could face a cabinet revolt on a customs union as peers prepare to inflict more defeats on the government over the EU withdrawal bill in a key week for the future of the UK’s relations with Europe.

Amid Brexiter threats of a leadership challenge, the former cabinet minister Nicky Morgan, who chairs the Treasury committee, said party rebels should be careful what they wished for.

“This sabre-rattling is not coming from the section of the party that I represent. It is coming from the pro-Brexit section of the party and is deeply unhelpful,” she said.

Government hopes of avoiding a hard border in Ireland either through technological innovation or regulatory alignment have been set back after they were rejected during preliminary negotiations in Brussels.

Q&A What is a customs union? Show A customs union means that countries agree to apply no or very low tariffs to goods sold between them, and to collectively apply the same tariffs to imported goods from the rest of the world. International trade deals are then negotiated by the bloc as a whole. For the EU, this means deals are negotiated by by Brussels, although individual member state governments agree the mandate and approve the final deal. The EU has trade deals covering 69 countries, including Canada and South Korea, which the UK has been attempting to roll over into post-Brexit bilateral agreements. Proponents of an independent UK trade policy outside the EU customs union say Britain must forge its own deals if it is to take advantage of the world’s fastest-growing economies. However they have never explained why Germany manages to export more than three times the value in goods to China than Britain does, while also being in the EU customs union. Jennifer Rankin

That has led to speculation that May is preparing to concede on a customs union, which has been a red line since the prime minister’s conference speech in October 2016.

Reports over the weekend suggested a “wargaming” exercise into the consequences of a concession showed that not even leading Brexiters such as Michael Gove, the environment secretary, or Boris Johnson, the foreign secretary, would resign.

But a source close to Gove reiterated his opposition: “Michael believes respecting the referendum result means taking back control of trade policy. He fully supports the prime minister’s position that this means leaving the customs union.”

Nicky Morgan said hysteria and leadership speculation were not in Britain’s interest. Photograph: David Mirzoeff/PA

Although the loss of other pledges in negotiations have been reluctantly accepted, such as the promise to reclaim control over fishing quotas from March 2019, accepting continued membership of a customs union would be of a different and much larger scale.

Downing Street sources dismissed the idea. “The position remains very clear: we don’t think staying in a customs union is the right thing to do and it isn’t government policy to do so,” a spokesperson said.

Any customs union makes it effectively impossible to negotiate free trade deals with other countries – one of the government’s key ambitions and a central justification for leaving the EU.



But a meaningful vote on remaining in the customs union is likely in the next few months. At least 10 Tory backbenchers have signed an amendment to the trade and customs bill supporting continued membership.

Morgan is one of the 12 select committee chairs who are backing that policy in a potentially difficult debate in the Commons on Thursday on customs union membership. She said it would be an opportunity for a calm debate about the reality of leaving the customs union based on the evidence that select committees were hearing as they investigated its potential impact.

“If every time we debate these issues or pass an amendment all we end up with is this hysteria and leadership speculation, that is not in Britain’s interest,” she said.

“The majority of the party would not entertain a leadership contest at the moment and those who want to ... should think very carefully if they really want to intervene in the negotiations in the way a leadership contest would.”

Labour MP Chuka Umunna, and pro-remain Tory Anna Soubry have tabled amendments to the trade and customs bill, due to be debated on Thursday, that would make staying in the customs union a legal objective of the government.

In the House of Lords, the government is braced for more defeats as peers begin a second week of votes on the EU withdrawal bill on Monday. Last week, 24 Tory peers backed the customs union amendment.

The most difficult vote on Monday is likely to be on the EU charter of fundamental rights. The government nearly lost a vote in the Commons on a similar amendment, which seeks to incorporate the charter into the legislation. It is one of the few major aspects of EU law that has been left out.

The government argues that the rights it protects are already covered by UK law, but it also says the charter provides more protection than is needed. Campaigners fear that means the government will seek to dilute the rights.

Peter Goldsmith, who as Tony Blair’s attorney general was involved in drafting the charter, said it was only excluded from the withdrawal bill because of an ideologically driven hatred of the EU.

The government is vulnerable on the issue, with Tory rebels such as the former attorney general Dominic Grieve only dropping their opposition when the bill passed its earlier stages after ministers pledged to publish a review of the rights conferred by the charter and set out their view.

The published review eventually amounted to an extended criticism of the EU charter.



In remarks that indicate Grieve may yet lead a revolt in the Commons, he said it would be unacceptable for rights to be left unprotected while waiting for the government to come forward with new legislation to make up for the loss of EU law.

“I want to see how the government responds,” he said. “I understand that in the longer term we need a new system, but it’s a mistake not to leave the protections intact for now.”

The equalities and human rights commission insists the charter is essential to safeguard individual rights effectively and adapt to changing circumstances. The charter includes a general right to non-discrimination, protection of a child’s best interests and the right to human dignity, none of which are properly protected by existing UK law.

