Theresa May's plan to trigger Brexit next month clears major hurdle in Lords

Former Business Secretary Lord Mandelson warns it would be 'economic disaster' for Britain to leave the single market

A carnival float depicting British Prime Minister Theresa May pointing a gun to her with the lettering 'Brexit' takes part in the traditional 'Rose Monday' carnival parade in Duesseldorf, western Germany (Getty Images)

The Government has defeated the first challenge in the Lords to its plan to trigger Brexit negotiations next month.

Peers voted against an amendment to the Brexit Bill demanding the UK retains its membership of the European single market.

The 229 to 136 vote, a majority of 163, exposed deep divisions within Labour.

In the debate, former Business Secretary Lord Mandelson warned it would be an "economic disaster" for Britain to leave the single market.

However, opposition frontbencher Baroness Hayter of Kentish Town accused supporters of the amendment of offering "unrealistic hope" that the UK could stay within the EU's trading area.

Warning against re-running the arguments of the referendum campaign, she said Britain would be recipients of rules set in Brussels if it opted for a Norwegian-style model.

Lord Mandelson hit back saying the UK would be a "senior influential" member of the European Economic Area (EEA) with influence over rule-making.

"I can't understand why my own frontbench can't see it," he said.

The clash came after Supreme Court campaigner Gina Miller had urged the Lords to show "backbone" and push the Government into concessions over Brexit.

She told The Independent those debating Ms May’s Article 50 Bill this week must take the lead, because the House of Commons had shown “cowardice” in failing to win any compromise.

Some peers sought to change the Government's mind.

Lord Hain warned of the economic dangers of leaving the trading bloc and criticised his own party leadership for prioritising immigration over jobs and prosperity.

He said: "Both the Government and, may I say sadly, my party leadership in the Commons, have effectively put the migration issue ahead of jobs and prosperity, and I think that's fundamentally mistaken.

"Of course human rights and of course migration issues have to be addressed. But to put that first, to put migration first... ahead of jobs and prosperity, which depend on the single market, is perverse in the extreme in my view."

He warned leaving the single market could be "catastrophic".

There were divisions on the Tory benches too, with former minister Baroness Altmann warning the Government was "gambling with millions of manufacturing jobs".

She said: "By leaving the single market we are hampering our manufacturing industry and putting barriers in the way which will ensure the destruction of millions of jobs.

"Unless we get some kind of access to the single market we are sacrificing integrated supply chains which so many smaller businesses depend on."

But Tory former minister Lord Blencathra said the move to stay within the EEA flew in the face of what the people had voted for, adding: "It is staying in the EU by the backdoor."

He said: "The Prime Minister hasn't opted for a hard Brexit or a soft Brexit.

"She's merely attempting to carry out the wishes of the people who voted to leave the EU and that automatically means leaving the single market."

Baroness Hayter said she believed Theresa May's approach to Brexit was "wrong", but passing the amendment would effectively mean "asking the Prime Minister to eat her own words".

Staying in the single market meant accepting free movement, the baroness said. She added: "With regard to free movement, we cannot simply airbrush this from the referendum decision.

"For if we turn round to those who voted out, and we say 'yes we are out, but actually we are still having everything exactly as it was, we are still having free movement unchanged', I think that might emit some surprise."

In a tense exchange, Lord Mandelson intervened on the Labour minister and dismissed her concerns.

He said: "We would not be mere recipients my lords, we would be large, senior, influential members of the EEA, negotiating our membership of the EEA in terms that would give us significant influence over policy-making and rule-making in the European Union.

"Everyone accepts that and I cannot understand why my own frontbench cant see it."

Responding for the Government, Brexit Minister Lord Bridges of Headley spoke out against the amendment.

He said: "To remain a member of the single market and to remain a full member of the customs union would, to all intents and purposes, mean not leaving the EU at all."

Addressing his fellow lords, he urged them to "stop fighting the battles of the campaign, but come together to help us to think of ways in which we can't continue to thrive, continue to trade and to overcome some of these challenges".

The Government is expected to face further challenges in the days ahead, on key issues such as having a "meaningful" parliamentary vote on the Brexit deal and allowing EU nationals resident in the UK to remain.

Additional reporting by Press Association