Читать книгу Fall Out: A Year of Political Mayhem - Tim Shipman, Tim Shipman - Страница 15

Two moments in early September summed up Theresa May’s approach to Brexit negotiations during the autumn of 2016. In the first Prime Minister’s Questions after the summer break, May said she would not give a ‘running commentary’ on the talks. She then took a call from the French president, François Hollande. Six weeks earlier, May had shocked Westminster by putting on hold an £18 billion deal for French company EDF Energy to build the Hinkley Point C nuclear power station, a joint venture with a Chinese state-owned firm. Now, having studied the evidence herself, May gave the green light. Hollande asked why she had thrown the deal into uncertainty. The prime minister replied, ‘It is my method.’

Alasdair Palmer, who worked for May at the Home Office, said, ‘She likes to consider the evidence carefully before coming to a conclusion. That takes her time. That is why she likes to set up inquiries and consultations – processes that delay decision taking and help reassure her that the decision that eventually emerges will be the right one.’ She would not be bounced into decisions. ‘I’ve seen people trying to grab her in the margins of a meeting and say, “Can we do this?” and she’ll ask them to produce a piece of paper, and not take the decision now,’ a senior cabinet minister said. ‘She has always been like that.’

May embarked upon a laborious series of cabinet discussions about Brexit, in which her desire to keep her destination hidden from the public seemed at times to fly in the face of the clear signals that she had sent in her party conference speeches. It was a process in which the prime minister herself seemed to want reassurance that the roadmap she and Nick Timothy had agreed was the right one.

The prime minister had made a big thing of returning to cabinet government after the Cameron years but Brexit was not discussed by the full cabinet. Instead, May appointed a dozen-strong cabinet subcommittee (the European Union Exit and Trade Committee). In keeping with her penchant for secrecy the membership was not published until it leaked in mid-October. Every cabinet minister who had campaigned to leave the EU – David Davis, Boris Johnson, Liam Fox, Chris Grayling, Priti Patel and Andrea Leadsom – was included, half the committee, when they represented just a quarter of the full cabinet. The other five members, all Remain backers, were Philip Hammond, Amber Rudd, Damian Green, Greg Clark and party chairman Patrick McLoughlin.

May let everyone have their say and ministers initially praised the way conclusions had not been preordained on her sofa before the meeting as they had been in the Cameron days. One cabinet minister said, ‘There’s proper consideration of the issues.’ Soon, though, some realised these discussions seldom led to decisions at all. ‘They were deliberations not decision making,’ one cabinet minister said. ‘The decisions were still made in Downing Street.’ Another present for the meetings described them as ‘fairly odd’. ‘Cameron meetings were always chaotic and vociferous. Hers were calm, more measured, but you don’t really get a real debate with her. You lodge some points and some observations and she absorbs. But it’s terribly difficult to gauge whether you are getting anywhere.’ To those paying attention, it seemed obvious that May had decided to leave the single market and the customs union, but the prime minister denied it publicly and in private let her warring ministers fight it out, occasionally showing her displeasure. A senior cabinet minister said, ‘She has a very healthy impatience, a slightly Thatcherian quality. She gives that heavy sigh and there’s a rolling of the eyebrows.’

In the early meetings, each of which lasted around two hours, Boris Johnson and Philip Hammond emerged as the key antagonists at the head of the blocs of Remain- and Leave-supporting ministers. ‘Boris would make rousing speeches about how it was all going to be brilliant and how we should all be saying positive things about Brexit,’ a cabinet colleague recalled. ‘Phil used to get pretty annoyed about that and say, “It’s not that simple.” Phil was pretty punchy about staying in the single market and even more so on the customs union.’ A source close to May said, ‘Hammond and Boris wound each other up, pulling faces when the other one was saying stuff.’ Another witness said, ‘Boris would chunter through Phil’s interventions.’

The two men could not have been more different. Johnson, the Dulux dog lookalike with papers spilling from the distended pockets of his suit, was a man of feral political instincts whose yearning for positive publicity belied an essential shyness. By contrast, Hammond was buttoned up in both tailoring and manner. His accountant’s eye for the bottom line had garnered him one nickname ‘Spreadsheet Phil’, his allergic reaction to the media and soporific delivery another ironic appellation: ‘Box Office’. Hammond had a sense of humour drier than a Jacob’s cream cracker in the Sahara but his lugubrious politics and appearance, that of a purse-lipped Jar Jar Binks, almost invited the question, ‘Why the long face?’

Since no work had been done by the civil service to prepare for Brexit, these early meetings were information-gathering exercises rather than policy-making forums. Civil servants despaired at the level of knowledge around the table. ‘It is not possible to underestimate the level of knowledge in the cabinet at that point,’ one official said. ‘When those things were said at conference I would be quite careful about assuming that the implications were really clear. A big part of the job for officials was educating politicians about the implications of the political narrative that they had established.’ This even included Davis. A civil servant said, ‘He thought he knew a lot but most of what he’d written was wrong in some way: legally, diplomatically or just plain not correct. You had to put evidence in front of him and use facts.’

May also faced a steep learning curve. Her experience as home secretary was valuable. But having done the same job for six years she lacked expertise outside her brief, particularly in economic affairs. A senior civil servant said, ‘I didn’t have a sense that outside the world of justice and home affairs she knew what she thought very much.’

A senior cabinet minister summed up the Brexit committee discussions as ‘an educational process’. He said, ‘There hadn’t been a stroke of work done under Cameron, so this was all from scratch. The initial meetings covered what the questions were, then by late autumn we were beginning to get options. In the new year we started answering those questions.’

To their colleagues some Brexiteer ministers seemed more interested in justifying the way they voted in the referendum than preparing for Brexit. Andrea Leadsom, the environment secretary, stood out to colleagues as one who read her thoughts from the departmental brief in front of her. ‘Andrea turns up and says what officials have told her to say,’ a source close to May said. Another aide characterised the contributions of Leadsom and Priti Patel, the international development secretary, as ‘pretty vacuous’, their comments a combination of ‘departmental briefs’ and ‘occasional prejudices’.

DExEU officials told Leadsom she would need to hire five hundred more staff but she initially recruited only thirty. ‘They’ve got to redesign forty years of agriculture policy and the entire system of subsidy,’ a DExEU source said. ‘Meetings with her were embarrassing.’ A cabinet colleague said, ‘She was completely out of her depth at the beginning. She is a genuine and decent person, but massively underpowered for what was needed at secretary of state level. She’s very stubborn and basically not really bright enough.’ Several ministers recalled that Leadsom’s most memorable contribution in cabinet that year was nothing to do with Brexit. Leadsom had been subjected to ridicule from MPs when she used leadership hustings in June 2016 to discuss the neonatal charity she had set up, which advocated massaging babies’ brains. During a health discussion that autumn, she raised the subject again, to the bemusement of her cabinet colleagues. One said, ‘She only ever talks about exports of British produce and babies’ brains.’

Philip Hammond’s time as foreign secretary during Cameron’s renegotiation gave him an advantage over most of his colleagues. Combined with the institutional clout of the Treasury, he quickly began to assert himself. The chancellor was ‘very gloomy’ about Brexit for three reasons. A former minister with whom he discussed his concerns that autumn said, ‘One was the economic cost of it. The second was they could see the impact on financial services. Companies were making decisions about whether to leave. Third, they were feeling a bit overwhelmed by all the problems – like creating a customs system at the border.’

A cabinet committee paper discussed in mid-October warned that the Treasury could lose up to £66 billion a year in tax revenues if there was a hard Brexit. It also predicted a worst-case scenario that GDP could fall by as much as 9.5 per cent after fifteen years if Britain left the single market and traded on World Trade Organisation terms. ‘In headline terms trade would be around a fifth lower than it otherwise would have been,’ it said. The paper drew on the work Treasury officials had done for George Osborne during the referendum campaign. Jeremy Heywood ordered a rewrite of key sections for ‘more balance’, but even the revised draft drew complaints from Brexiteers that Hammond was ‘trying to make leaving the single market look bad’.1 Publication of the leak drove the pound to a thirty-one-year low against the dollar.

Hammond’s vociferous stance and the institutional activism of the Treasury enraged the senior Brexiteers. ‘The Treasury for months after the vote was absolutely determined to frustrate the outcome as much as it possibly could,’ a senior cabinet minister said. ‘They believed that membership of the single market would be seen by everybody as an unalloyed good. But to leave the EU you have to leave the legislative rule-making system, which is the single market.’

Realising after the first cabinet committee meeting on Brexit that they needed to stick together, Boris Johnson, Liam Fox and David Davis met in a waiting room in 10 Downing Street to confirm to each other that they accepted the logic that Brexit meant leaving both the single market and the customs union. ‘If you’re going to do it, do it right,’ Johnson said. ‘It’s like Theresa says, you’ve got to stop thinking about what we hold on to, you have to imagine Britain free and think of what you want.’ Fox’s ability to secure free trade deals depended on Britain leaving both arrangements: ‘To be in the single market would mean unrestricted freedom of movement which is politically not possible,’ he said. ‘To remain fully in the customs union we’re not allowed to have separate free trade agreements with the rest of the world outside of the EU.’ Fox regarded these arguments as ‘unanswerable’.

Davis was sceptical of the ‘clever people with a uniform set of views’ in the Treasury and the ‘gravity model’ they used on trade, which decreed that the closer you are to a country the more you trade. He believed it was ineffective because services were ‘weightless’ and traditional constraints on long-distance trade, like transport costs, were a small fraction of what they had been decades earlier. ‘David felt they massively overestimated the negative impact of a no-deal WTO scenario and then underestimated the advantages of deals with the rest of the world because they’re all a long way away from us,’ a source said. When Hammond told him there might be a 25 per cent fall in trade, Davis replied, ‘That’s bollocks!’

Despite her conference speech, May did not wish to be boxed in or hurried into stating her views publicly. ‘The system was moving too rapidly to tell her what the right answer would be without giving any evidence,’ one mandarin admitted. Some officials found it difficult to adapt from the free-wheeling briefings of the Cameron days to a female prime minister who wanted things done more formally. Both Mark Lyall-Grant, the national security adviser, and Andrew Parker, the director general of MI5, attracted May’s ire for interrupting her, talking over her and ‘mansplaining’ in condescending tones.2 Ivan Rogers had a similar effect. Some saw the same trait in Hammond, who did not trouble to disguise his disdain for those with lesser intellects or job titles. A cabinet minister said, ‘He was patronising. Boris, in particular, had a rough time at some of these meetings.’ Another cabinet colleague explained, ‘He thinks Boris is a plonker.’ May’s team saw Hammond’s spats with Johnson as evidence that he, too, was seeking to justify his vote on 23 June: ‘It does feel a little bit like an exchange of blows over things that are long gone. Phil made such a song and dance about his Euroscepticism over the years – then he campaigned to stay in. Having then lost he feels he can’t re-rat.’

When May made Hammond her chancellor, the conventional wisdom was that they were old university friends and that she wanted someone she could trust next door. While they were Oxford contemporaries, Hammond had a very different approach to economics from May and Nick Timothy and felt himself to be no less able than May. Hammond told a former cabinet minister, ‘If Theresa May can be the prime minister, so can I.’ The source said, ‘They’re not friends. He doesn’t like her.’

Hammond’s personality also irritated May’s team. A cabinet colleague said, ‘There is something mildly Aspergic about him. Philip is not very user friendly.’ The chancellor clung to the security blanket of single market membership long after others had given it up as impossible. A senior mandarin said, ‘Phil was beating a dead horse. That’s the charm and the irritation of the man. He usually picks the wrong battle.’

For his part, the chancellor became highly frustrated that he was blocked by the chiefs from seeing May alone, without their presence. A Downing Street official said, ‘Philip used to get very frustrated that he could not see the PM. He thought he had the right to see her any time he liked.’ A senior civil servant said Hammond would hover outside May’s office but would be intercepted by Timothy or Hill: ‘He would want to see her on her own but they would say, “You’re not going in there without us.”’ Another Downing Street source said, ‘He was made to feel unwelcome. They never spoke to DD like that.’

In October it was reported that Hammond had threatened to resign, in part because he had been excluded from the 8.30 a.m. planning meeting in Number 10 at which George Osborne had been an habitué. 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.

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.’

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.