Ministers now believe that Britain and the EU will fail to sign a post-Brexit trade deal, with just days remaining until Boris Johnson’s July deadline for an outline agreement passes.
The Telegraph has learnt that the Government’s central working assumption is that Britain will trade with Europe on World Trade Organisation terms when the transition period ends on December 31.
UK and EU negotiators began the latest round of negotiations in London on Monday, but remain deadlocked on the stumbling blocks of fishing rights, so-called “level playing field” guarantees, governance of the deal and the role of the European Court of Justice.
Senior sources said there was now an assumption that “there won’t be a deal”, though it remains possible that a “basic” agreement could be reached if the EU gives ground in the autumn.
Businesses have already been told to start preparing for a no trade deal exit from the transition period, a scenario that comes closer with each day of failed negotiations.
The current round of formal talks between David Frost, the UK’s chief negotiator, and the EU’s Michel Barnier is due to finish on Thursday, with no expectation on either side of a breakthrough.
No more face-to-face talks are scheduled this month, meaning Mr Johnson’s July deadline will have passed.
On Tuesday night, Mr Frost hosted a dinner for Mr Barnier in Downing Street, but while Mr Johnson had made a point of joining the two men the last time Mr Barnier was in London, he made no such gesture this time.
A senior source said: “The Government has been making it clear for a while now that it is prepared for no deal. Britain isn't going to budge on fundamentals like fishing rights , so it’s all in the hands of the EU.”
Britain is seeking a zero-tariff, zero-quota trade deal, but trading on WTO terms would mean tariffs on goods and red tape that could lead to delays in the passage of goods entering and leaving the UK.
Mr Johnson has made it clear that is a price he is prepared to pay if the EU refuses to back down over its insistence on retaining some say over British laws and fishing waters.
Angela Merkel warned the EU to prepare for no deal when Germany took over the rotating six-month presidency of the bloc on July 1. Mr Johnson had earlier told her the UK was willing to walk out of negotiations if necessary.
Diplomats in Brussels insisted the EU was ready for whatever the outcome of the trade talks may be.
“They are right to work on the basis of no deal, [as] we are as well,” a diplomat from an influential member state said. The bare bones nature of the trade agreement British negotiators were pushing for meant there was “no material difference” between the deal or no deal, the diplomat added.
— Michel Barnier (@MichelBarnier) July 20, 2020
Britain has stressed repeatedly that it is not asking the EU for a better deal than it has given other nations, but Brussels has insisted it will only offer a deal with strings attached.
One UK negotiating team source said: “We wanted to see an agreement this month. It’s clear from the EU side that’s not going to happen.
“No trade deal has to be the working assumption, because that’s what we have to prepare for. But it doesn’t mean it’s what we want or are working to make happen.”
Mr Frost is understood to be ready to meet Mr Barnier again in August if there is movement from the EU on the sticking points.
The EU insists the real deadline for a deal is the end of October, which would still allow time for member states to ratify the agreement before the end of transition.
There are some in Government who still believe the two sides will agree a deal, but one source on the British side said: “There is a chance of a deal, but it will be a basic deal, not a phenomenal deal. We should know by mid-August whether there’s any chance it will happen.
“It all depends on whether the EU wants to step up negotiations over the summer. If it doesn’t, then the Government’s view is that it’s not interested.”
The UK has rejected the EU’s demands for “level playing field” guarantees. Britain fears that commitments to match EU standards on tax, labour rights, environment and state aid will hamper its ability to diverge from Brussels’ rules after Brexit.
Brussels also insists that the European Court of Justice must have a role in the agreement, where decisions on the interpretation of EU law are necessary.
EU sources said both sides were waiting for the other to “jump first” and claimed one concession could swiftly unlock the whole agreement.
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