The UK raised the prospect of creating a single market for goods with the EU as part of Keir Starmer’s reset.
Officials suggested the idea to Brussels as a means of improving relations with the bloc, according to reports.
But the EU is said to have rejected the idea and instead suggested a full customs union or economic alignment, according to the Guardian.
Nevertheless, the prospect will alarm those who backed Brexit amid fears that Labour are trying to rejoin the EU.
Rejoining the single market or the customs union would breach Labour’s manifesto red lines.
The embarrassing revelation comes as the embattled Prime Minister tries to shore up his legacy in the time he has left in office.
Sir Keir’s likely challenger for the leadership, Wes Streeting, has said he wants to rejoin the EU, as did Andy Burnham last year.
During recent visits to Brussels, the Cabinet Office’s top official on EU relations, Michael Ellam, suggested the idea to Brussels, according to the report.
Rejoining the single market or the customs union would breach Labour’s manifesto red lines. Pictured: Sir Keir Starmer visiting a children's activity centre in Essex on May 21, 2026
The EU is said to have rejected the prospect, offering either a customs union or economic alignment under the European Economic Area (EEA) - a single market of 30 mostly EU countries.
But this latter prospect would also mean accepting free movement of people, another Labour red line.
UK government sources told the paper that the EU had not definitively rejected a single market for goods and said it was among a range of options being discussed before a summit tentatively pencilled in for July 13.
The UK and EU have not yet agreed an agenda to be launched at the summit.
Both sides hope to strike sector-by-sector deals to ease trade in food and drink as well as emissions.
They also hope to break the deadlock over a youth mobility programme.
Both the Prime Minister and Chancellor have said they are keen to explore alignment on goods.
Rachel Reeves has said there is ‘a strategic imperative for deeper integration between the UK and EU - in our shared need for greater economic resilience’.
A Cabinet Office spokesman said: ‘We have previously confirmed that the next UK-EU summit will be held this summer. A final date will be confirmed in due course.’