At least four MPs are said to be backing the Canada arrangement instead of a no-deal, which Theresa May has threatened if the EU does not bend from its hardline stance.
Meanwhile former Home Secretary Amber Rudd has upped the stakes by hinting support for a second referendum.
A leaked document has offered an insight into the preparations underway aimed at keeping Britain afloat in the absence of a withdrawal agreement, with Mrs May telling a summit of business leaders yesterday she “didn’t know” where negotiations would end up.
Ministers are concerned at Mrs May’s vow to take the UK out of the bloc on March 29 without a deal if her Chequers proposals, which European Council President Donald Tusk told last week’s Salzburg summit “will not work”, are rejected once again another summit scheduled for October 18.
However, big hitters including Brexit Secretary Dominic Raab, Foreign Secretary Jeremy Hunt, Environment Secretary Michael Gove and Home Secretary Sajid Javid are said to have grave misgivings about her uncompromising approach.
Instead, they would like her to back a Canada-style free trade deal which would enable mostly tariff-free trade in goods with the EU – although more restrictions on the movement of services.
One source told The Times: “We don’t want a no-deal and lots of people think her tactic means we can get there by accident.
“We think that a Canada deal is better than no deal.”
Brexit Secretary Dominic Raab and Home Secretary Sajid Javid are thought to want a Canada-style deal
I think a bad deal will be a deal, for example, that broke up the United Kingdom
However, to complicate the situation, no clear solution has yet been floated which would resolve the question of the border between Northern Ireland and the Irish Republic, arguably the biggest impediment to securing a workable deal.
Speaking on Tuesday, Mrs May said a Canada-type arrangement would mean a hard border and would therefore trigger the EU’s backstop clause, which would keep Northern Ireland within elements of the customs union and single market.
This in turn would mean a customs border in the Irish Sea, with the Democratic Unionist Party (DUP) MPs who prop up Mrs May’s Government likely withdrawing their support as a result.
She told reporters: “First of all, I’ve always said no deal is better than a bad deal. I think a bad deal will be a deal, for example, that broke up the United Kingdom. We want to maintain the unity of the United Kingdom.
Theresa May appeared to rule the idea out as a “bad deal” yesterday
“What we’ve put on the table is a good deal. It’s a deal that retains the unity of the United Kingdom, our constitutional integrity.
“It’s a deal which provides for no hard border between Northern Ireland and Ireland, protects jobs and enables us to have a good trade relationship with Europe and good trade relationships with the rest of the world.”
She followed this up by telling the Bloomberg Business Summit in New York yesterday: “We don’t know when negotiations will end.
“We have to ensure we’re prepared for any eventuality.
International trade secretary Liam Fox is among those advocating a hard Brexit
“My job is to ensure we’ve put in place the steps that make sure that if it is that worst-case scenario we will still make a success of it.”
Mrs May is also faced with a significant number of ministers who favour a hard Brexit, with the Times suggesting Work and Pensions Secretary Esther McVey, Leader of the Commons Andrea Leadsom, the International Development Secretary Penny Mordaunt, and Liam Fox, International Development Secretary, are in this camp.
An agenda leaked after a private session at which envoys discussed ways of keeping aircraft flying, medicine supplies moving and ports in the event of a no-deal scenario gave an indication of the intensity of the activity going on behind the scenes.
It said: “Preparedness work has to intensify in the months ahead, at national as well as EU level, as uncertainty remains about the outcome of the negotiations and the ratification of a possible deal.”
Former Home Secretary Amber Rudd has hinted at support for a second referendum
Ms Rudd said yesterday there were circumstances in which she could be persuaded to back a second vote.
She said: “No deal is something parliament would object to.
“A people’s vote is something that could result from an impasse.
“Is it preferable to no deal, absolutely.”