Fall Out: A Year of Political Mayhem

The third task was to begin talks to secure new free trade agreements. He regarded the US as the main target, but Australia, New Zealand and the Gulf Cooperation Council all indicated interest, with China and India as the other main prizes. This work could not begin in earnest until Davis made progress on trade talks with the EU, because these countries wanted to know what access to the EU a deal with Britain would bring. A paper prepared for a cabinet Brexit committee meeting in September (leaked in November) showed that the DIT had divided countries he wanted Britain to trade with into ‘gold’ and ‘silver’ categories.

The fourth and final strand of his work was to talk to Britain’s EU partners about how the EU negotiations, led by Davis, would affect world trade. Fox warned that they had a responsibility not to damage global prosperity: ‘If Europe comes to an agreement that limits trade and investment that will impact the global economy.’ He explained his approach in a speech in Manchester on 29 September, vowing to make Britain a ‘world leader in free trade’ and exploit the ‘golden opportunity’ to forge new links. He urged the EU to avoid tariffs which he said would ‘harm the people of Europe’.

Things weren’t plain sailing, though. Fox received legal advice that there was a ‘high risk’ that the European Commission would take Britain to court and seek to fine the UK if he sought to sign or negotiate trade deals with third countries while it remained in the EU. The paper revealed that even discussing a trade deal with a country not actively negotiating with the EU would still ‘carry a medium/low risk’ of being sued by Brussels. A Downing Street official said, ‘There was a lot of bravado from ministers about what they were going to achieve, which very quickly proved to be unrealistic and legally impossible.’ Some civil servants believed that Fox’s focus on trade tariffs – and his belief that a trade deal with the EU would be the ‘easiest in the world’ – was missing the point, since the real problems were encountered trying to secure a deal on services, where the refusal to recognise professional qualifications and other non-tariff barriers were more significant. ‘It’s not all about tariffs,’ a senior mandarin said. ‘Liam believes you just unilaterally disarm and then take all your tariffs down.’

Ivan Rogers also warned Downing Street that the belief of Brexiteers that they could just walk away from the EU with no deal and keep trading on the same terms if neither side erected tariffs was incorrect. Unless the UK signed a trade deal it would automatically revert to the status of a third country after Brexit. He told May, ‘You have to be on the list of countries permitted to export into the EU market. Secondly, individual firms then have to be approved, and thirdly individual consignments have to be cleared before the goods or services are allowed on the EU market. That applies to all non-member states until you have a preferential agreement.’5

Hammond and the Treasury were also fighting for the financial services industry, which would need special ‘passporting’ deals to trade in the EU. ‘He was of the view that if the FTA doesn’t cover financial services, it’s not worth having anyway,’ a senior official said. May, schooled by Timothy in a distaste for City fat cats, saw it as less of a priority. ‘She was not persuaded by the City arguments,’ a cabinet minister said. ‘They concluded they would be a sacrificial victim.’ Davis, who had chaired the Future of Banking commission back in 2010, believed the banks had captured the Treasury. Privately he had been heard to describe bankers as ‘the most overpaid useless bunch of wankers I’ve ever met in my life’.

There were also problems getting DIT fully up to speed. Ivan Rogers warned Jeremy Heywood that the EU trade directorate was, with its US counterpart, the best in the world. ‘We have within a very short space of time to build one of the best three trade negotiating authorities in the world.’6 DIT was not ready for battle.

In seeking to forge a compromise on the customs union, Davis argued that it was perfectly possible to have a frictionless border if Britain secured a free trade agreement with the EU. His ‘grand simplifying principle’ of the agreement was that Britain would start with total regulatory alignment with the EU and ‘if in doubt, keep it as open as it is now’. In the absence of tariffs, a new customs deal would have to settle ‘rules of origin’ – designed to stop a country like China using the UK as a ‘landing craft’ to flood the EU market – and how to equate standards on safety, hygiene, data, consumer rights and the environment between the two jurisdictions. He argued that 92 per cent of goods consignments, whose contents could be electronically pre-notified, would take just five seconds to clear customs. Only 8 per cent would have to be inspected.

Ivan Rogers helped get Hammond to understand how isolated he was becoming. They met before the chancellor travelled to a meeting of EU finance ministers on 6 December. ‘I think you’re fighting a completely losing battle on the customs union, I understand why you’re fighting it but I think you’re on a loser,’ Rogers said. Hammond argued that the future benefits of free trade deals would never match those of single market and customs union membership. ‘I’d like to see a reputable cross-government cost-benefit analysis, because it will only show one thing.’ Rogers replied, ‘If this were about cost-benefit analysis we wouldn’t be here at all.’ Instead, Rogers urged Hammond to concentrate his efforts on persuading May to secure a transitional arrangement which would keep Britain inside the customs union while a full-blown agreement could be drawn up. ‘That’s all you’re going to get,’ he said.

In her conference speech May had said, ‘Every stray word and every hyped-up media report is going to make it harder for us to get the right deal for Britain.’ But all the bickering meant the cabinet committee leaked relentlessly as the two sides manoeuvred for position. A paper on trade found its way to the Sunday Times, details of an immigration discussion to the Daily Telegraph and another on security to the Sunday Telegraph. The Times got hold of a handful of leaks, most notably a paper circulated in November ranking various industries as high, medium and low priorities in the Brexit negotiations. The high-priority industries included pharmaceuticals, car-making, clothing, aerospace, banking and air transport. The steel industry and the business services sector were unimpressed to find themselves in the lowest category.7

After initially distributing the key papers a week in advance, Jeremy Heywood began numbering every document, limiting them to hard copies, so they could not be emailed on, and sending them out only the night before or on the morning of meetings. A cabinet minister said, ‘You knew perfectly well that if you discussed anything in cabinet it would be outside three minutes after cabinet finished. You cannot have an argument with someone when they’re having a three-way discussion with the newspapers at the same time.’ Suspicion fell on Johnson and Hammond, but also on Priti Patel, Chris Grayling and Liam Fox, who was liked by May but regarded as an oddball by the chiefs. Fox’s cabinet colleagues delighted in spreading a story – vehemently denied by Fox himself – that he had been locked in his hotel room on the orders of the chiefs for several hours during May’s trip to India.

As a former journalist who knew Sam Coates – the principal recipient of the Brexit committee papers – James Chapman was quizzed by MI5 officers, who demanded access to both his and his wife’s mobile phones. ‘We can see you’ve been talking to him,’ one of his interrogators said. Chapman had won a reputation among journalists for never telling his former colleagues anything useful, so the experience was distressing. ‘I’ve never leaked a cabinet document in my life,’ he said. Chapman had already decided to leave government and was in talks with the public affairs company Bell Pottinger. Embarrassingly, his private email was full of messages about the possibility of a new job.

The primary leaker was never identified but senior officials in Downing Street, including Katie Perrior, came to suspect that the chiefs were responsible for some of the leaks in a bid to keep journalists occupied and that they had pointed the finger of blame at Chapman to cover their tracks. In October Laura Kuenssberg, the BBC’s political editor, found out, half an hour before the decision was announced, that Heathrow was to be allowed to build a third runway.

Earlier, ITV’s Chris Ship had broken the news of May’s decision to approve Hinkley Point. Perrior was quizzed by security: ‘Do you ever speak to Chris Ship?’

‘Yes.’

‘How often?’

‘Several times a week.’

‘Why do you do that?’

‘Because I’m the director of communications …’

The leak inquiries were inconclusive but Hill and Timothy had not been required to submit their own phones. When most of the autumn statement appeared in the public domain in advance, Hammond told May he suspected one of her staff of trying to undermine him. This time Perrior suggested that everyone – including May, Hammond and Jeremy Heywood – hand in their phones to ensure there was no excuse for the chiefs to be excluded. She knew the chiefs had been briefing because Timothy was taking her through the plans when they were interrupted by an official informing him that a Sunday newspaper journalist was waiting for him in the next room. The officials charged with the leak inquiry discovered that the chiefs talked to journalists so often that it was impossible to tell if they were behind the specific leaks.

In early December, Jeremy Heywood issued an edict that the ‘spate of corrosive leaks’ must come to an end. In a memo to mandarins he ordered senior officials to use only government-issue phones, allowing all their communications to be monitored, and warned that anyone leaking would be fired, whether or not there was a threat to national security. Within a few days, Heywood’s memo itself had been leaked to the Mail on Sunday.

May’s government took security very seriously. Every minister in the Brexit department was given an MI5 briefing when they got the job. ‘They told us that we were going to be the most targeted department in Whitehall,’ one minister said. David Davis took this to heart, carrying around his computer and iPad in a metal briefcase containing a ‘Faraday cage’ to block all wireless, cellular, GPS and WiFi signals. At his home he stored them in a biscuit tin. He was also told by the security services to ditch his Apple watch to prevent foreign spies using it to listen to his conversations. He replaced it with a Garmin smart watch, advertised as ‘for athletes and adventurers’. Asked if it was ‘government issue’, Davis said, ‘You must be joking – that’s a thousand-quid watch.’ When embarking on foreign trips ministers were warned that they might be approached by ‘honey trap’ agents from foreign powers and jokingly told, ‘You might even want to get changed under your bedclothes.’ The warning led to a story in the Sun on Sunday that Theresa May herself had been advised to disrobe under the covers or risk being filmed naked – a leak for which Boris Johnson was blamed.

The paranoia extended to Downing Street, where Fiona Hill was highly security conscious after living with a former spy for several years. ‘Fiona banned us from talking on mobiles in case people were listening,’ said a DExEU official. ‘If you wanted Fiona you had to call her on her landline.’ Six years at the Home Office had made the prime minister, too, wary of security issues. One of her staff asked May how she kept her wardrobe refreshed: ‘I don’t know how you find the time. I go home at midnight, I sit on the John Lewis website and I get it all delivered. Do you online shop?’

May said, ‘I’m the former home secretary, of course I don’t shop online.’

By November May’s desire for secrecy around Brexit meant progress was slow. Number 10’s sensitivity was well summarised by a memo written by a Deloitte consultant in the Cabinet Office on 7 November, which leaked to The Times eight days later. It warned that Whitehall was struggling to cope with more than five hundred Brexit projects and the fact that ‘no common strategy’ had emerged among cabinet ministers. The memo said May’s predilection for ‘drawing in decisions and details to settle matters herself’ was holding up decision-making.

The prime minister was described as ‘personally affronted’ by the wording. The official response was, ‘This is not a government report and we don’t recognise the claims made in it.’ But for all too many people it had hit the nail on the head.

Within a month Deloitte had a meeting with Sir Jeremy Heywood and John Manzoni, the chief executive of the civil service, and – under threat of further punishment – agreed not to bid for any further government contracts for six months. Deloitte’s treatment excited comparisons between May’s operation and both Stalin and Colonel Gaddafi, while business voices complained that her team ‘don’t want to hear difficult messages’ and were guilty of ‘government by rage’.8 MP Anna Soubry, a Remainer, said Deloitte had been ‘bullied’. Ministers told to keep quiet, not accept lunch invitations from journalists and refused permission by Downing Street to make announcements on the government ‘grid’ felt much the same way.

The very next day, 16 November, the Institute for Government (IfG), a thinktank close to senior mandarins, warned that Brexit represented an ‘existential threat’ to the operations of some departments: ‘Whitehall does not have the capacity to deliver Brexit on top of everything else to which it is already committed.’ The IfG said May’s ‘secretive approach’ was hampering preparations, with the result that they looked ‘chaotic and dysfunctional’. It said, ‘Silence is not a strategy. Failure to reveal the government’s plan to reach a negotiating position is eroding confidence among business and investors.’9

The same day the IfG report was published, Sir Simon Fraser, the former permanent secretary at the Foreign Office, appeared in front of the new select committee shadowing DExEU and said the government did not yet have a ‘central plan’ for Brexit.

May and her team thought they had signalled clearly where they were heading, but her cabinet was divided and Whitehall was in open revolt. To make matters worse, the European Commission was now playing hardball too, over the most contentious issue of all.

Money.

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