Theresa May will meet senior ministers later as she comes under growing pressure to change her Brexit policy.
The PM has insisted she will stick by her Chequers plan for close future co-operation with the EU despite European leaders attacking it last week.
Many Tories want her to ditch it in favour of a Canada-style trade accord.
Foreign Secretary Jeremy Hunt has declined to rule this option out while his predecessor Boris Johnson said it offered a “real alternative”.
The UK is due to leave the EU on March 29 2019 and the two sides are seeking to negotiate the terms of exit as well as an outline agreement on future co-operation, over the next month or so.
But the talks hit the rocks on Thursday when EU leaders dismissed the basis of the PM’s plan – a free trade zone and common rule book for goods with greater divergence for services – as “unworkable”.
The prime minister hit back, accusing the EU of showing the UK a lack of respect and of failing to come up with alternative proposals to minimise disruption to trade and avoid the return to to checks at the Irish border.
At a cabinet meeting later, Mrs May will defend her strategy in the face of what is expected to be calls for her to keep the option of a Canada-style arrangement on the table as talks enter a crucial phase.
Canada’s deal with the EU, signed in 2016, removes the vast majority of customs duties on EU exports to Canada and Canadian exports to the EU.
Speaking on Saturday, Mr Hunt said the PM’s plans “work better” than any alternative because they provide a solution to avoiding a hard border on the island of Ireland but he was “not dismissing anything”.
Leading Tory Brexiteers such as Boris Johnson and Jacob Rees-Mogg are backing the Canada option, saying it is acceptable to the EU and will be approved by Parliament.
Mr Johnson said proposals put forward by the Institute for Economic Affairs on Monday showed there was an alternative to ending up as a vassal state with “colony status” through the Chequers route.
The IEA, a free market think-tank, said Mrs May should change tack and pursue an advanced free trade agreement with the EU, with full reciprocal market access, no tariffs in goods including agriculture and maximum recognition of regulatory standards.
It said new customs processes had to be put in place that could handle a potential five-fold increase in declarations after Brexit, using enhanced technology and information sharing to separate the movement of goods from the processing of forms for as many traders as possible.
What is the so-called Canada option?
- It is based on Canada’s free trade deal with the EU, called the Comprehensive Economic and Trade Agreement or Ceta, which was agreed in 2016 after seven years of negotiations.
- The deal eliminates most trade tariffs on goods and gives Canadian firms preferential access to EU markets without them having to automatically sign up EU regulations
- It does not include some food items, including eggs and chicken, while services are only partially covered. Brexiteers want a Plus, Plus version of the deal addressing these areas.
- It is strictly a trade deal – so the UK would still have to reach new arrangements with the EU in other areas, such as security.
Concerns over the Irish border could be “solved”, the IEA argued, by bespoke technical solutions, including trusted trader schemes and streamlined procedures for small businesses.
“The ideas that are being floated this morning show that there’s a real alternative and it’s the alternative that the prime minister originally wanted to do,” Mr Johnson said.
“It enables us to do a big free trade agreement with the European Union but also to do free trade deals around the world.”
But former education secretary Nicky Morgan, who favours closer links with the EU after Brexit, said a Canada-style deal would take years to negotiate and might not give the kind of access its supporters hoped for.
She told Conservative Home that the fallback option was for the UK to rejoin the European Free Trade Association, the so-called Norway option which would give the UK preferential market access although it would be required to accept EU rules, including on freedom of movement.
“If we make a conscious decision to opt for Norway now we would leave the EU – thus honouring the 2016 referendum result – and, more particularly, leave the EU’s political institutions,” she wrote.
“It would be a return to the common market principles that Margaret Thatcher advocated when the UK led the creation of the Single Market.”
As the government steps up preparations for the possibility of the UK leaving without a deal, it will publish its latest batch of no-deal contingency papers later, covering industries such as aviation.