Tim Shipman - Fall Out - A Year of Political Mayhem

In Number 10, Hill and Timothy took the same approach. On the steps of Downing Street May gave a very well received speech vowing to ‘fight against the burning injustices’ of poverty, race, class and health and make Britain ‘a country that works for everyone’. When it came time to set out May’s plans for Brexit, they knew it was the moment to write a big speech.

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It all began with a phrase and an idea. The phrase, in a perfect encapsulation of so much that was to follow, was part Nick Timothy, part Theresa May. The two of them and Fiona Hill were in May’s parliamentary office. It was July 2016 and David Cameron had resigned. The Conservative leadership contest was under way and they were discussing how May, a leading though not prominent Remainer, could reassure the party base that she would respect the results of the EU referendum. As they tossed around phrases, Timothy said, ‘Brexit means Brexit,’ at which point May chimed in, mimicking the jingle-like cadence Timothy had used and adding the coda, ‘… and we’ll make a success of it’.

It was a phrase, as Timothy was to put it, ‘with many lives’. The immediate purpose ‘was to be very clear that she, as someone who had voted remain, respected the result and Brexit was going to happen’. In the months to come the phrase evolved. ‘It also became a message to people who didn’t like the result that they had to respect it. Brexit had to mean actually leaving and limiting the relationship, not having us effectively rejoin.’

‘Brexit means Brexit’ was a statement of intent, but there was still the question of what that meant in practice. Britain had voted to leave the European Union, but the destination had not been on the ballot paper. The Leave campaign deliberately never specified which model of future relationship should be pursued. Public debate dissolved into whether the UK would mimic Norway, Switzerland, Turkey or Canada.

Norway was a member of the European Economic Area (EEA) along with all twenty-eight EU countries, plus Liechtenstein and Iceland, giving it full membership of the single market, an area of 500 million people within which the free movement of goods, capital, services and labour – the ‘four freedoms’ – was guaranteed. While outside the European Union, Norway paid money into the EU budget and had to agree to all the standards and regulations of the market, except those on agriculture, fisheries, and justice and home affairs. The downside was that Norway was a ‘rule taker, not a rule maker’ and had no say over the future rules of the market.

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.