(Bloomberg) -- British Prime Minister Theresa May's government is growing increasingly concerned that it could crash out of the European Union without a trade deal as the two sides blame each other for slow progress of talks.
The bloc's refusal to discuss a post-Brexit trade pact until it's satisfied with the terms of the divorce is stoking fears in the U.K. team that time will run out, according to officials speaking on condition of anonymity. Brexit Secretary David Davis said on Tuesday he is still aiming for a good deal, but warned the country must be prepared if negotiations fail, and work is being done in London to prepare for that eventuality.
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“There is a determined exercise under way in Whitehall devoted to contingency arrangements so that we are ready for any outcome,” Davis told members of the governing Conservative Party at their conference in Manchester, northern England. “Not because it is what we seek, but because it needs to be done.”
The clock is ticking down toward Britain's departure from the bloc on March 29, 2019 after more than four decades of membership. The U.K. stepped up its preparations for a total breakdown in talks as the EU warned that it is not satisfied with May's approach to negotiations so far.
Leaving the EU without a deal would be catastrophic for business, throwing into legal limbo industries from financial markets to air travel and pharmaceuticals. Trading terms would revert after decades to World Trade Organization tariffs, and trucks could pile up at ports awaiting customs checks.
Europe will not discuss future trade until there's “sufficient progress” on the divorce terms, including the so-called Brexit bill, but British officials say they have no idea how “sufficient progress” is to be defined. The U.K. agreed to abide by the EU's timetable for divorce first and then trade back in June.
Far Apart
May accepted that Britain would pay its dues in a speech in Florence, Italy, on Sept. 22. It created some goodwill in Europe and allowed for progress in talks last week, yet the two sides are still far apart on the bill. At the same time, the Conservatives have been split on what kind of Brexit to pursue, with prominent lawmakers such as Foreign Secretary Boris Johnson adamant Britain shouldn't be held to ransom.
On Tuesday, EU Chief Brexit Negotiator Michel Barnier and European Commission President Jean-Claude Juncker said Britain must give more details about what kind of divorce terms it's willing to accept -- particularly on the financial settlement -- before talks can begin on trade.
While the Florence speech was helpful, “speeches are not negotiation positions,” Juncker said. The European Parliament, which has a veto on the final deal, also backed a resolution saying there has not yet been enough movement toward the exit settlement.
Speaking on condition of anonymity because the discussions were private, senior officials now fear time could run out for the U.K. to reach the “heads of agreement” on a future trade deal. The U.K. triggered so-called Article 50, the two-year legal mechanism for leaving the EU, in March. Trouble is, it's never been used before.
More Discussions
Another round of talks begin Monday and the U.K. is hoping that a summit in mid-October will expand Barnier's mandate to allow him to discuss a transition deal alongside the divorce. May said in Florence she wants a two-year period after Brexit whereby Britain remains in the single market to ease the process for businesses.
“The process is being made harder than it has to be, but the blame for that doesn't lie on this side of the Channel, the blame for that lies on the unwillingness of the European Union to get into the second stage of negotiations,” U.K. Trade Secretary Liam Fox said in a BBC radio interview.
The longer the delay in moving on to discuss future trade, the “more difficult” for everybody to get to a deal in the timetable the U.K. wants, he said. “There is intense frustration that the European Union are concentrating on issues like the money and not letting us progress beyond that,” Fox said.
While May's government has said leaving the bloc without a deal is not its goal, some of the most enthusiastic supporters of Brexit, including some high-profile Conservatives, are sanguine about the prospect.
“If there's no deal there's no money -- nothing,” Tory lawmaker Jacob Rees-Mogg, a possible leadership contender, said in an interview with Bloomberg TV. “There's no obligation under international EU or U.K. law to pay anything if we leave without a deal under the terms of Article 50.”
Also speaking in Manchester, Chancellor of the Exchequer Philip Hammond asked businesses to help him convince more skeptical colleagues of the urgency of securing a Brexit transition deal by showing they're ready to invest as soon as agreement is reached on a period of adjustment.
There was some good news for May. After a series of rebellious outbursts on the state of the negotiations, Johnson pledged his loyalty to the prime minister, telling party delegates she will get Britain “a great Brexit deal.”
--With assistance from Anna Edwards and Svenja O'Donnell
To contact the reporters on this story: Tim Ross in Manchester, England at tross54@bloomberg.net, Emma Ross-Thomas in Manchester, England at erossthomas@bloomberg.net, Ian Wishart in Brussels at iwishart@bloomberg.net.
To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Rodney Jefferson
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