Theresa May is facing renewed cross-party pressure to accept membership of the European Economic Area (EEA) or risk defeat in the Commons.
Peers vote on Tuesday night on a series of amendments as officials work to try to find a deal on May’s preferred option of a customs relationship with Europe that is acceptable to Brexiters and remainers in her cabinet, as well as MPs and EU negotiators.
The policy paper rejected by the inner cabinet on the Brexit subcommittee last week has been withdrawn for further work and will not be discussed at this week’s regular meeting.
A Downing Street source said: “It was agreed on Wednesday that more work needed to be done to flesh out the general principles agreed – no hard border and as frictionless trade as possible.
“We realise the urgency. But as Greg Clark [the business secretary] said on Sunday, it is a crucial question to get right.”