Tim Shipman - Fall Out - A Year of Political Mayhem

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.

Hammond, backed up by Greg Clark, challenged Fox’s Department for International Trade to quantify the benefits that could be accrued from new trade deals with non-EU countries, but the figures were not forthcoming. ‘This was why Hammond was saying, “We’re not leaving the customs union” – because he didn’t believe these other trade deals are going to make up the difference,’ a senior civil servant said. Trade deals with even friendly countries like the US, Australia and New Zealand presented difficulties, since they would open the border to hormone-infused beef, chlorinated chickens from the States and cheap lamb from Australasia. ‘The Welsh Office said, “Hang on a minute, that will kill the Welsh lamb industry,”’ a source recalled.

There were also practical problems at the border. A former minister said, ‘Phil told me that for every hour at Dover, 30 kilometres of lorries go through. They just don’t have any system at all for stopping and checking them.’ Customs were installing a new computer system, the Customs Declaration System, a fact which raised alarm bells following previous government IT failures. Officials advised Davis that they would need one thousand lorry bays to inspect incoming freight at Dover. There were currently ten. The dawning realisation that Britain would also need thousands of new customs officers strengthened the hand of Hammond and other ministers who were pressing for a transitional arrangement, to buy Britain more time to move from EU membership to the new order. Put simply, unlike May and Davis the chancellor believed there was no chance of having the necessary people and systems in place by the end of March 2019. ‘That’s why the Treasury began to kick back violently,’ a source said.

As the row rumbled on, Fox remained confident that Britain would be outside the customs union, a view he was quick to share with EU officials. A DIT trade strategy paper leaked in September warned that staying in the customs union ‘would constrain our ability to act independently’ and could also be ‘portrayed by some that remaining means we have not left the EU’. A senior civil servant observed, ‘Liam, of course, was fighting for his job. But unless May was going to sack him and shut his department down, the customs decision was taken on the day they created DIT.’

However, when Ivan Rogers sought clarity from Downing Street he was told nothing had been decided. In Number 10, despite her conference speech, allies say May was engaged in the search for a halfway house. ‘On the customs union, I think she genuinely wanted to try and find another way,’ one said. With some ministers, May even used an old phrase of Tony Blair’s. ‘She kept saying, “Maybe there’s some third way …”’ When quizzed by reporters, May would say, ‘It’s not a binary decision.’ A source close to the prime minister explained, ‘Membership itself is a binary choice but access is not.’ There was even talk of keeping certain sectors of the economy or parts of the country inside the customs union – an idea soon dropped as impractical. This hedging created friction with the Brexiteers, particularly Boris Johnson, who wanted a clear statement that the UK was leaving.

Johnson compared the customs union to the Zollverein, the nineteenth-century arrangement which broke down tariff barriers between German states while maintaining tariffs with the outside world. He wanted Britain to ‘come out of the Zollverein’ as it related to the rest of the world, but retain free movement of goods between the UK and the rest of the zone. The foreign secretary was unable to keep his views private. On a trip to Prague on 15 November he told a Czech newspaper, ‘Probably, we will need to leave the customs union.’ He also dismissed the notion that freedom of movement was a founding principle of the EU, with customary relish, as ‘bollocks’. May was not amused. Her official spokeswoman Helen Bower told journalists, ‘The foreign secretary reflected the government’s position which is that a decision hasn’t been taken.’

On his return, Johnson was summoned to Downing Street for a ‘meeting without coffee’ with May and Timothy. ‘Boris, why are you so obsessed with the customs union?’ May asked. The foreign secretary replied, ‘It doesn’t make any sense.’ They had a long argument. Johnson pointed out, ‘You could have frictionless trade from outside the customs union and continue to have goods and services circulating inside the single market.’ He cited the example of integrated automotive supply chains that cross the US-Canadian border. Johnson left and told aides that May was concerned business would be ‘spooked’ by the idea of leaving the customs union. Privately he was critical that Davis was not backing him up. A source close to Johnson said, ‘DD’s position was, “God, it’s all so difficult” because he had a vested interest in intensifying the magnitude of the task in order to intensify his triumph when it comes. Boris was worried that the whole tone of the government was becoming defeatist.’

Johnson did have an ally in Fox. In a wing of the Foreign Office overlooking Whitehall, which had been annexed by DIT, the international trade secretary got on with the job as if he had no doubts Britain was leaving. He saw four main tasks. The first was securing Britain separate ‘schedules’ at the World Trade Organisation, in effect deciding how much of the EU’s trade concessions would be taken over by Britain. It was not just a case of taking ownership of a fixed percentage. The vast bulk of New Zealand lamb coming into the whole EU ended up in Britain, for example. Fox argued that the schedules should apply based on the percentage of any quota ending up in the UK market.

The second task was arranging deals for Britain with countries who already had a free trade deal with the EU so that the UK could keep trading with them on the same terms after Brexit. That meant trying to transplant forty agreements covering fifty-eight countries. Two were worth a disproportionate amount of the trade: Switzerland and South Korea. Fox told those countries, ‘We want to adopt the EU FTA [free trade agreement] into UK law. We’ll come to a more bespoke agreement that’s more liberal later on.’