Theresa May’s options are limited as the European Union reject a key part of her most recent Brexit proposal. This decision from the EU announced on Thursday, means that the prime minister will have to come up with a completely new proposal, with only 12 weeks left until a divorce deal needs to be signed.

This comes as a disappointing blow for Teresa May who had hoped that her thoughts for a customs proposal would be ideal for the split Parliament. But in a rather blunt evaluation, chief EU negotiator Michel Barnier stated that he would never accept this plan.

The rejection is mainly due to the fact that May had put forward a model which would see the UK collect EU’s tariffs on goods that entered the country in an effort to see the free flow of trade, essentially allowing us to have our cake and eat it. Barnier said the EU would never permit a non-member to collect its tariffs. Former Brexit secretary David Davis believed this would be the outcome because May’s compromise was “trying to push us into a Customs Union.”

Barnier’s quick rejection also saw the pound weaken on Thursday.

May is in a difficult spot; alternative options leave her vulnerable to being ousted and perhaps result in Britain leaving the bloc without a deal. It appears the EU wants the UK to stay inside the customs union, as Barnier states “I have always said the EU is open to a customs union.”

This option will, however, outrage many of the leave-supporters in the Conservative Party and cause May to backpedal on her previous promises. But on the other hand, this result would be favoured by pro-EU members of May’s party and Labour. No support from Parliament and essentially no proposal the EU will accept, the UK could be facing leaving the bloc with no deal and an uncertain future with the EU. Increasing uncertainties has seen “no deal” contingency planning on both sides, with negotiations stalling. Yet, no deal is not in the interest of either party as this could cause major issues in global supply chains.

News of a ‘fallback’ plan has been circulating. This secret Brexit plan, commissioned by Davis, was concocted in case May’s Chequers deal was taken off the table. The plan, which is more in line with the desires of Brexiteers, is based upon the existing trade deals the EU has with Canada, New Zealand, Japan and South Korea, and is proposed to be presented to the EU as an alternative option. The thought is that because this plan mirrors existing treaties, it is more likely to get the seal of approval from Brussels. Davis called it the “reserve parachute” which is “ready to go. It would be attractive to European countries wanting to avoid no deal and losing the £39bn divorce bill.”

This option relies on a system of “mutual recognition” of standards instead of tying the UK to the rules on goods assigned by the EU. Based upon the World Trade Organisation agreements, under ‘trusted trader’ systems, it ultimately reduces the need for customs checks.

“We would go to the EU and ask for the best bits of each deal. They would be giving nothing more than they’ve already agreed with others,” according to one Cabinet source.

May has been given another chance to pitch a new Brexit plan to the EU leaders. Time will tell whether May presents this “back-up” deal or provides an alternative possibility.

A new meeting has been arranged to present a new deal. Both sides want something finalised by October to provide enough time (eight months, in fact) for approvals and preparations.

However, confidence is breaking among cabinet ministers and the public who are lobbying for a second referendum, a thought which is gaining momentum. Opinion polls see May’s approval ratings plummeting, whilst 42% of the public believe there should be a referendum on any final Brexit deal, according to a YouGov poll.

Naturally, this yo-yo effect has a negative impact on business cost management. With no certainty, businesses are left in a state of flux, unsure what the next steps they need to take to secure their operations and keep their bottom lines down. Unfortunately, waiting until the last minute could leave your business in a vulnerable spot, as preparations could take a while and a finalised Brexit deal is looking like it may take some time to complete. To find out more about Brexit’s impact on organisations, read our FREE white paper. For more guidance, get in touch with our specialists today.