Fall Out: A Year of Political Mayhem. Tim Shipman
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In fact, Hammond had never threatened to resign but he had told friends that he had thought about doing so. ‘He went around – in a gallows humour kind of way – saying, “Well, I won’t be in this government very long,”’ one ally said. ‘He doesn’t get on with her at all.’ Fiona Hill put ‘face time’ with Hammond in May’s diary but the chancellor demanded meetings about the autumn statement alone with May, which the chiefs viewed as unacceptable. Hammond’s marginalisation was also painful for his officials. ‘The Treasury was running the country under George Osborne and Gordon Brown,’ one said nostalgically. As a result of this episode it was agreed that Hammond would have regular dinners or breakfasts with May. ‘Phil insisted on having his weekly time with her,’ a fellow minister said. Nick Timothy explained later, ‘They go for dinner or breakfast with one another probably every fortnight.’3 The arrangement was publicised by Hammond’s aides. By contrast, David Davis was able to wander in to see Hill and Timothy – both of whom were firm DD fans – whenever he liked.
May’s aides believed Hammond – while not a leaker to the media himself – was too ready to sound off to people who shared his thoughts with journalists. A cabinet colleague said, ‘Philip talks too freely.’ A May aide stated, ‘On Brexit he quite willingly talks against her to Mark Carney, who tells everyone in his circle and that feeds back. I think he’s a bit naïve, actually.’ In discussions with third parties Hammond did little to disguise his scepticism about May’s approach. ‘The economy almost certainly will slow down,’ he said privately. As chancellor, Hammond wanted more headroom in the public finances to cushion against turbulence. His personal assessment that autumn, shared with political and media contacts, was that a Remain vote would have provided ‘a growth kick of half a per cent of GDP a year for several years’ and that growth in 2017 would have been 2.5 per cent, a figure he now expected to be just 1 per cent. Nick Timothy, in particular, regarded Hammond’s views on the economy as excessively pessimistic. A DExEU official said, ‘The way they talked to the chancellor of the exchequer was totally outrageous. I’ve seen DD in meetings roll his eyes as Hammond tries to say something sensible about Brexit. They don’t want to hear anything about problems.’
As the autumn went on the daunting complexity of Brexit became clearer to the cabinet. At the end of September, Carlos Ghosn, the CEO of Nissan, warned that he could scrap potential new investment in the car firm’s Sunderland plant unless the government promised to compensate the company for any tariffs imposed after Brexit. WTO rules stipulated tariffs of 10 per cent on car imports and exports, wreaking havoc with cross-border supply chains. One senior cabinet minister admitted, ‘Brexit was a surprise for the Japanese and they don’t like surprises.’
Theresa May and Greg Clark, the business secretary, set to work to put Nissan’s mind at rest. They did not offer tariff relief but privately made clear that Britain would be pursuing a bespoke trade deal with the aim of keeping tariffs at zero and borders as frictionless as possible. A minister said, ‘Assurances were given about investment in training but there were no financial inducements.’ It was enough for Ghosn to announce, on 27 October, that Nissan would build its new Qashqai II and X-Trail models in Sunderland, safeguarding seven thousand jobs. It was a propaganda win for the Brexiteers. The Remainers responded by pointing out that insurance giant Lloyd’s of London was planning to open a series of subsidiary offices elsewhere in the EU so they could continue to operate post Brexit.
Ministers were quickly aware that moving EU law into British law could not be done at the stroke of a pen, since many laws referred to rulings by the European Commission or various EU regulatory bodies. Each of these would need to be rewritten to refer to new British regulators. A cabinet minister said, ‘People made an initial scan and thought, “Fuck!” The number of statutes affected started off in the tens of thousands. It came down significantly to around one thousand.’ The number fell because government lawyers ‘found ways of doing things once’ which would ‘cross over to other statutes’.
Davis set up fifty-eight projects inside DExEU to analyse the implications of Brexit for different sectors of the economy and public life and make recommendations about which had to be protected. Separately, Davis asked a bright civil servant called Tom Shinner to oversee a risk register of key projects and institute a ‘critical path analysis’ which would send alarm bells to Davis if progress on preparing for Brexit was too tardy. May’s conference speech brought home to civil servants across Whitehall what was at stake. ‘You could go from no impact on the automative industry if you replicate tariff-free trade to total disaster if we have hard Brexit with all the tariffs,’ one said. ‘We realised that we had to prepare for the worst-case scenario.’
The implications of May’s approach to the European Court of Justice raised alarm bells in several departments. The court played a role in overseeing Euratom, the nuclear materials regulator, the Open Skies Agreement, which gave British airlines parity of access to European airports; the European Medicines Agency, which regulated medicines; and the European Broadcasting Union, which granted licences to television companies, prompting the Discovery Channel to warn ministers they might have to relocate elsewhere in Europe. Ivan Rogers sought to explain to ministers some of the benefits of ECJ oversight. ‘On aeroplanes, access to the single market means planes can land at EU airports and return from them. Membership of the single market means you get slot, gate and lounge allocation on the same terms as local airlines – not 3.00 a.m. slots a mile away from the terminal, and the airlines can fly within the EU, not just to and from the EU. Access means that your banks can only lend via a local subsidiary. Membership means there is no need for your banks to be separately supervised, regulated, managed and capitalised subsidiaries in other countries. Access means that Scotch can be sold into France or Germany; membership of the single market means that all taxes and duties for comparable products to Scotch must be the same as for Scotch, and if they are not, we can take them to the ECJ and say, “Why are they not?”’4
In each case a new deal or a domestic solution was possible, but they would need to be found. A DExEU official said, ‘It was clear we were leaving not just the single market but every European agency. The Department of Health people said, “We can’t leave the European Medicines Agency”. Well, you just have. When we asked each department what their preferred outcome was they all said, “Everything to remain as it is.”’ That meant officials needed to concentrate on finding ways to replicate the status quo and resist contingency planning for a scenario in which there was no deal. Davis was forced to ‘kick them hard’ to prepare.
After initial concerns that the Brexit secretary did not like detail and would not put in a full five-day week, by Christmas most saw him as a serious figure striving to get to grips with the task in hand. ‘My aim,’ he told his staff, ‘is to imagine a huge Venn diagram of the different groups – politicians, the City, industry, the diplomatic corps – and find somewhere in that bloody great Venn diagram where everybody overlaps.’ At the centre of the diagram, Davis sought to ‘ensure Number 9 and Number 10 [Downing Street] are as close as they sound like they are’. A cabinet minister observed of May, ‘It takes her time to make decisions. It also takes her time to trust people. You have to work at it.’
Despite Philip Hammond’s agitation, the cabinet quickly came to the view that Britain would leave the single market. Their most heated debates throughout autumn 2016 concerned whether the country would remain a full member of the customs union, within which countries set common external tariffs and do not require customs checks. Also at issue was whether the UK could begin negotiating its own free trade deals with other countries, which was not possible with full membership.
In October a leaked cabinet paper showed ministers had been warned that pulling out of the customs union could lead to a 4.5 per cent fall in GDP by 2030 and the clogging up of trade through ports like Dover and Holyhead. It estimated that the UK would need to grow trade with its ten largest partners outside the EU by 37 per cent by 2030 to make up the difference. But the cabinet Brexiteers did not believe the Treasury’s figures, after their referendum campaign warnings about an immediate economic shock had proved incorrect. Davis dismissed them as ‘pessimistic’, while Johnson branded the modelling ‘Project Fear crap’ reminiscent of the referendum campaign.