Fall Out: A Year of Political Mayhem. Tim Shipman
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Switzerland was a member of the European Free Trade Association (EFTA) but not of the single market, and its access to the market was governed by a series of more than one hundred bilateral agreements with the EU governing key sectors of the economy, though crucially not its banking or services sector. The Swiss made a smaller financial contribution to the budget than Norway and had to implement EU regulations to enable trade. A referendum in 2014 to end the free movement of people had led to retaliation from the EU.
Turkey, like Andorra and San Marino, was in a customs union with the EU, while outside the EEA and EFTA. That meant it faced no quotas, tariffs, taxes and duties on imports or exports on industrial goods sold into the EU and had to apply the EU’s external tariff on goods imported from the rest of the world. The deal did not extend to services or agricultural goods.
Canada had just concluded a comprehensive economic and trade agreement (CETA) with the EU after seven years of negotiations, which eliminated tariffs on most goods, excluding services and sensitive food items like eggs and chicken. The deal gave Canada preferential access to the single market without many of the obligations faced by Norway and Switzerland, for goods that were entirely ‘made in Canada’, but for Britain it would not have given the financial services sector ‘passporting’ rights to operate in the EU.
The alternative to all these models was to leave with no deal and revert to the rules of the World Trade Organisation (WTO), which imposed set tariffs on different products. Supporters of free trade said the average 3 per cent tariffs were not burdensome but on cars, a key industry for Britain, they were 10 per cent. Removing all tariffs would also be expected to see the market flooded with cheap food and steel, threatening the UK’s farming and manufacturing.
At this point the phrase ‘soft Brexit’ was taken to mean membership of the single market and the customs union, while ‘hard Brexit’ meant an alternative arrangement, though these terms were to evolve.
This approach was anathema to May, who rejected all attempts to compare the deal Britain might negotiate to any of the existing models. She told her aides, ‘That’s entirely the wrong way of looking at it.’ From the beginning May knew she wanted a new bespoke deal for Britain. The prime minister, with encouragement from Hill, saw the process as similar to negotiation she had carried out as home secretary in October 2012 when she opted out of 130 EU directives on justice and home affairs and then negotiated re-entry into thirty-five of them, including the European Arrest Warrant, several months later. ‘We have already done what was in effect an EU negotiation,’ a source close to May said. ‘We know how it works, we know what levers to pull and we know how to get what we want out of a negotiation.’
The first thing they wanted – the big idea – was a dedicated department to run Brexit. May, Hill and Timothy believed the ‘bandwidth’ in Whitehall was seriously lacking. ‘We knew we’d have a big challenge to get preparation for Brexit up and running quickly,’ a source close to May said. During a meeting in Nick Timothy’s front room the weekend before May became leader they decided they would create a standalone department, a move that put noses out of joint at the Foreign Office and the Treasury in particular. ‘We know Whitehall, we know how it works,’ the source said. ‘Unless you have a standalone department heading in the same direction then everyone works in silos.’ It was the first of many decisions with far-reaching consequences made on the hoof.
The idea of a new department for Brexit was enthusiastically supported by Sir Jeremy Heywood. The owlish cabinet secretary was a problem solver par excellence who had made himself indispensable to four prime ministers in succession, but his enemies saw a mandarin whose first priority in all situations was to maintain his own power base. As the official who had carried out the review that led to Hill’s departure from the Home Office, Heywood was understandably on edge after Team May’s arrival in Number 10. Under Cameron, the cabinet secretary had been driven to Downing Street every morning and then walked through Number 10 to the Cabinet Office. It was a symbol of his status. ‘When she came in that changed, he went through the Cabinet Office door,’ a senior civil servant said. ‘That was symbolic, putting him in his place.’
Heywood and May were well acquainted. They had dined together when she was home secretary. ‘He used to say that he didn’t look forward to these dinners because they had run out of things to talk about by the main course,’ a fellow mandarin recalled. However, the dinners served a purpose on both sides. ‘She did it because she was paranoid about what the centre was saying about her and it was a way of finding out,’ the mandarin said. Heywood, meanwhile, was spying for Cameron, who wanted to know what May wasn’t telling him. ‘In the Home Office she pulled up the drawbridge,’ said the mandarin. ‘It was like Gordon Brown times two.’
Keeping his job meant Heywood supporting the creation of new departments, even though that put him at odds with other senior civil servants like Sir Ivan Rogers, Britain’s permanent representative in Brussels – effectively the UK’s ambassador to the EU. Rogers – an intense character with a high forehead who spoke at one hundred miles an hour – felt that setting up new departments would consume the time and energy of officials that could have been better directed at the details of a potential deal.
The other issue facing Heywood was that almost no preparations had been done for Brexit, since Cameron had banned the civil service from working on contingency plans in the run-up to the referendum. The cabinet secretary had hoped to spend the summer getting the civil service ready but the earlier-than-expected end to the Tory leadership contest put paid to that. ‘We were caught flat footed,’ a senior civil servant admitted. One of May’s team said, ‘I remember thinking when I got to Number 10 that the absence of any real thinking about this massive issue the country was facing was really quite remarkable.’ Some said Heywood should have ignored Cameron. ‘It’s rather shocking that they did no preparations for Brexit,’ a Tory peer said. ‘They had a moral duty to prepare. People should have called for Jeremy’s head.’
The Department for Exiting the European Union (DExEU, pronounced Dex-ee-oo) was born out of the European and Global Issues Secretariat, a group of forty officials in the Cabinet Office, and quickly cannibalised the European affairs staff of the Foreign Office as well on its way to engaging more than four hundred staff. From early in her leadership campaign, May knew who she wanted to run DExEU – David Davis. ‘DD’, as he is known in Westminster, had been a whip during the passage of the Maastricht Treaty and then John Major’s Europe minister, jobs he had done with the devil-may-care bravado of an ex-SAS territorial, which remained the most interesting line on his CV and gave him an air of menacing charm that he had put to good use over the years. Davis finished second to Cameron in the 2005 leadership contest before throwing away his frontbench career as shadow home secretary with a maverick decision to resign his seat and fight a by-election to highlight civil liberties issues. That finished him with the Cameroons and paved the way for May to become home secretary. Davis became May’s most obstreperous backbench opponent during her time at the Home Office. A vociferous critic of the snooper state, he even joined forces with Labour’s Tom Watson to take ministers to court over the government’s surveillance powers. However, these confrontations had bred mutual respect not contempt – and crucially had even impressed Hill, whose stance towards May’s political enemies more usually resembled that of a lioness protecting her cubs. She told a friend, ‘He’s an absolute pro and having been on the receiving end of his campaigning for things like counter-terrorism laws I know how good he is. When he came onto the leadership team we really hit it off.’
Having been given a chance to do a serious job in government, Davis resolved to make himself useful to May and not allow policy differences to open between DExEU and Downing Street. ‘He decided he wanted to be a political consigliere to her,’ a source said. Davis’s attempts to ingratiate himself with May went to extreme lengths. ‘She and DD had this hideous flirting thing going on,’ said one official who attended their meetings. ‘She twinkled at DD. It was awful, it was like your grandparents flirting. Everybody wanted the ground to open up and swallow them whole.’
At Hill’s instigation, and with Katie Perrior’s encouragement, James Chapman – a former political editor of the Daily Mail who had been George Osborne’s special adviser – joined as Davis’s