Keir Starmer insists ‘internal market’ proposal will deliver full access to the single market, with no new impediments to trade

Labour is proposing an “internal market” that would deliver a new and close relationship with the European Union but falls short of membership of the single market while maintaining many of its advantages.

The proposal was heralded by some as the party’s most significant move so far towards a soft Brexit.

But the move stops just short of calling for the full single market membership sought by a vocal group of Labour MPs, after the Lords backed a Norway-style membership of the European Economic Area (EEA).

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Keir Starmer, the shadow Brexit secretary, said: “Labour will only accept a Brexit deal that delivers the benefits of the single market and protects jobs and living standards.”

The proposal, tabled as an amendment to the EU withdrawal bill ahead of its return to the Commons next Tuesday, fleshes out proposals originally made in a speech by Jeremy Corbyn in Coventry in February.

Corbyn said: “We are confident we can build a new relationship with the EU. We want the UK to have a better deal than the Norway model.”

The timing reflects anxiety among the party leadership about a looming revolt by pro-EU backbenchers on EEA membership.

Labour peers ambushed the party leadership last month when the amendment, tabled by Lord Alli, demanded that remaining a member of the EEA was a negotiating objective.

Brexit phrasebook: single market The EU’s single market is more than a free-trade area. It aims to remove not just the fiscal barriers to trade (tariffs) but the physical and technical barriers (borders and divergent product standards) too by allowing as free movement as possible of goods, capital, services and people. In essence, it is about treating the EU as a single trading territory. See our full Brexit phrasebook.

Although EU negotiators have repeatedly made it clear that there can be no cherry picking to the UK’s advantage in the negotiations, Starmer insists the new proposal would deliver full access to the single market, backed by EU-agreed standards, rights and protections. There would be shared UK-EU institutions and regulations, and no new impediments to trade.

“Unlike the Tories, Labour will not sacrifice jobs and the economy in the pursuit of a reckless and extreme interpretation of the referendum result,” he said. “Labour’s amendment, along with a commitment to negotiate a new comprehensive customs union with the EU, is a strong and balanced package that would retain the benefits of the single market.”

But Chris Leslie, a leading Labour remainer, said: “If the frontbench are missing the opportunity to secure the EEA single market as a UK negotiating objective, there will be utter dismay and shock across the Labour movement.”

Another Labour rebel said the leadership had “scrapped the Lords amendment (which is the only one the Tories will support) and replaced it with fudge”.

Former Cabinet minister Ben Bradshaw said the party should back the Lords push for EEA membership instead.

The Labour MP said Tory MPs “won’t vote for a Labour frontbench amendment” and if the party was “serious” about averting a hard Brexit “we must vote for the existing backbench cross-party Lords amendment”.

Some Tory rebels are also looking at some form of relationship as close to the EEA as possible, as a way of averting a catastrophic departure from the EU.

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Membership of the EEA itself is incompatible with either Theresa May’s red lines or Jeremy Corbyn’s concerns about the restrictions it would place on the ability of government to intervene in industry or procurement.

Members of the EEA such as Norway, which is not in the EU, belong to the single market but – as Norway’s prime minister made clear in an interview on Tuesday – that means accepting the so-called “four freedoms”, including freedom of movement.

The official deadline for new amendments to the EU withdrawal bill falls on Thursday and Tory rebels are increasingly optimistic that the government is ready to make concessions.

Officially the government is committed to reversing all 15 of the defeats inflicted by the Lords on the key piece of legislation that must be passed before the process of leaving the EU can begin.

But on Tuesday night one senior backbencher who has led revolts in the past suggested that were signs of movement by the government on a meaningful vote. The amendment was one of the most significant victories in the Lords. It would prevent May offering only a take-it-or-leave-it vote on the final deal and give parliament a role in negotiations.

Iain Duncan Smith, a leading Brexiter, also accepted that there could be some acceptable concessions, including on the “meaningful vote”.

What is the customs union? The European Union is a customs union. It allows free trade between countries inside it and allows imports in to the area by setting common tariffs. The area does not just include EU members. For instance, Turkey is part of the customs union for manufactured goods but not services or agriculture. The single market involves deeper integration of free movement of people, goods, services and money. This means laws need to be aligned. Some countries have access to the single market without being members of the EU’s customs union.

“This bill is the critical bill. The government is right to bring it forward. It defines our departure, and it defines our negotiations,” he said, pointing out that MPs nodded the bill through on its third reading in the Commons earlier this year.

Brexiters believe getting the withdrawal bill on the statute book before the key European council meeting at the end of June – barely a fortnight away – would strengthen May’s hand in negotiations, as there will be no prospect of her being forced by parliament to accept, for example, a customs union.

There are likely to be other revolts, however. Rebels believe the Lords amendment tabled by the architect of article 50, Lord Kerr, on the customs union, could be upheld in the Commons. It would require the government to make a statement outlining its efforts to negotiate a customs union.

That vote could be a key test of opinion in the Commons ahead of a more substantive amendment to the trade bill that has been tabled by Tory rebels.

There is also likely to be a significant row over the scheduling of the consideration of the amendments. Only one day has been set aside to consider all amendments, which could mean an all-night sitting on Tuesday.