Fall Out: A Year of Political Mayhem

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.

3

The Enemy Gets a Vote

It is lost to history whether Martin Selmayr was an admirer of General James ‘Mad Dog’ Mattis, the American general who was to become Donald Trump’s defence secretary, but he certainly understood one of Mattis’s favourite aphorisms about war – ‘the enemy gets a vote’. While the debate in cabinet and the British media was almost entirely consumed with what Britain wanted from a new deal with Brussels, senior Eurocrats had their own ideas and were beginning to flex their muscles. They didn’t come any more senior, or more aggressive, than Selmayr, the chief of staff to European Commission president Jean-Claude Juncker.

A German lawyer in his mid-forties, Selmayr was regarded – with good reason – as the most powerful man in Brussels. To some he was the most gifted protector of the European dream. To a generation of British diplomats he was a menace who regarded the UK as an obstruction to his schemes and had fully earned his nicknames, ‘the Rasputin of Brussels’ and ‘Monster of the Berlaymont’, the Commission’s headquarters. Said hardly ever to sleep, Selmayr harboured a peculiar animosity towards the British and their media, who had, in his words, a ‘foot on the brake of history’ – though Selmayr once claimed, ‘I only read the British press once a year, when I go to holiday in Spain, when one’s blood pressure is low.’ A ‘true believer’ in the European project, he was on record as saying, ‘Brexit cannot be a success,’ fearing that anything but a catastrophic Brexit could damage the European project. In early November he set out to make it so.

On 4 November, the Financial Times – Selmayr’s preferred British outlet – ran a story saying that the European Union was to demand an exit bill of €60 billion from Britain. Ivan Rogers, Britain’s ambassador to the EU, warned London that Selmayr was trying to ‘explode the whole thing’ by making an impossible demand. A British diplomat said, ‘Selmayr enjoys lobbing grenades into the UK debate. Unlike other EU figures, he is skilled in dealing with the media.’

The exact genesis of the Commission’s calculations was a mystery even to many in Brussels. Other member states told British officials that they had never seen the figure before and suggested it had been ‘plucked from the sky’ by Selmayr. Nonetheless there would be money to pay. Britain’s departure was hugely inconvenient for the other twenty-seven member states because it removed a net contributor to the EU budget that paid around 12 per cent of the bills, in 2016 a sum of around £9.5 billion. In 2013, the UK had signed up for the so-called Multi-annual Financial Framework (MFF) which dictated budget contributions through to 2020, a year after Brexit. Confronted by his opposite numbers about Britain ceasing to pay its dues, Rogers said, ‘They are not our dues because we will have left, so we do not have any financial liabilities at that point.’ EU officials told him, ‘You have exploded a bomb under the Multi-annual Financial Framework.’1 Countries in Eastern Europe which received EU structural funds would only get €88 for every €100 they had budgeted. The issue united countries that were net contributors and recipients. ‘One thing they can all agree on is that we are the rogues who have ceased to pay our dues,’ Rogers said.

The second part of the bill was the UK’s share of the so-called reste à liquider: the gap, in European Union accounting jargon, between commitments made by member states and the actual payments handed over, a figure that had ballooned over the years and would be more than €200 billion by 2018. Britain was also expected to pay its share of the pensions for EU officials accrued during its membership and fees for initiatives like the Erasmus university scheme and the Horizon 2020 scientific research budget if it wished to remain part of those initiatives. On the other side of the ledger, Britain could argue that it owned a share of EU assets like its buildings and had around £9 billion invested in the European Investment Bank.

If the money was a burden, it was also Theresa May’s best leverage in negotiating a new trade deal. Rogers told MPs, ‘The mere fact of our exiting during the period of the framework causes them immense financial difficulty.’2 His advice to May was, ‘Money will unlock a lot.’ But that stance – continuing to pay into the budget even after Brexit – was anathema to most Eurosceptics. It also put UKREP – the UK team in Brussels – at odds with officials in Whitehall, who took legal advice over whether Britain could be forced to pay anything. A House of Lords committee later concluded Britain could not be made to pay. To Rogers it was a matter of politics, not law.

Selmayr had first clashed with May when she was home secretary and he could see that her tactics for Brexit were an echo of her negotiation when Britain opted out of all EU justice and home affairs directives and then back into some of them. EU officials believed the Brexit process was far more complicated and described May’s approach as ‘deluded’. Selmayr’s other beef with May was that he had personally spent hours thrashing out the details of concessions she had demanded as home secretary during David Cameron’s ill-fated renegotiation before the EU referendum. Having sweated to satisfy May, he was furious when she virtually sat out the campaign. A British diplomat said, ‘May was pushing to get extra things into the package but she never then made much of it in the referendum campaign, which Martin hasn’t forgotten.’

Selmayr’s power derived in part from his hold over Juncker, whom British officials dismissed as a drunk. David Cameron had tried to stop Juncker getting the presidency of the European Commission and his aides had spread stories – apparently accurate – about the former Luxembourg prime minister drinking brandy for breakfast. ‘I’ve been to four or five things when he has been shitfaced,’ one official said. ‘Off his trolley, hugging and kissing people.’ Rogers’ advice to May was that she would have to find a way to ‘go around Selmayr’ to do business with Juncker directly. ‘Before he became a total pisshead he was a very sinuous, agile, clever, schmoozing politician,’ a senior official said. ‘Even now there are flashes through the alcoholic haze where you think, “This guy’s got a very considerable brain.”’ The problem was that Juncker’s knowledge of Britain was twenty years out of date. Recognising that he was ‘a total address book politician’, one diplomat asked Juncker, ‘Who do you know in British politics?’ Juncker replied, ‘There’s John Major, who I got along well with in the past, Ken Clarke, Peter Bottomley.’ As a roster of out-of-touch Europhiles with no skin in the new game it was hard to top. Hearing this, Rogers had sought to impress on London that someone should tell Juncker the home truths about political reality in Britain. ‘You need people who can be private channels,’ Rogers said. ‘That’s how the game works and every other European power does it.’

Dinner with Jean-Claude Juncker would have to wait but efforts to get May to bond with EU power brokers were made, to the bewilderment of some of them. Donald Tusk, the president of the European Council – the body of member state governments – was ushered in for a series of private chats and faced the same fate as many an MP and journalist. ‘There were Pinteresque pauses in all their bilaterals,’ an official said. Tusk complained, ‘She doesn’t say anything!’ and was told, ‘That’s not her style. Don’t take it personally.’ Martin Schulz, the president of the European Parliament, was invited to Downing Street in late September 2016. After his meeting with May, he texted a senior British diplomat to complain, ‘She didn’t say anything at all. Why have we come all the way to Downing St for that?’

These meetings raised questions about whether May would be able to do the human end of the negotiations, the ‘walk in the woods’ with fellow leaders that helped get a deal over the line. A Downing Street aide said May’s silences were partly a function of insecurity. ‘When you give her a brief to learn, she’s brilliant, but she doesn’t want to reveal what she doesn’t know so she won’t say anything.’ A senior European government official described May as ‘almost reciting from her notes’.3 At the European Council meeting in Brussels that December, May appeared isolated as television footage showed other leaders greeting each other warmly while she stood awkwardly to the side. She was quickly branded ‘Billy no mates’ on social media.

The Commission was regarded in Britain as a rather ridiculous organisation. It took Rogers to point out, ‘They are really pretty good at negotiating against people. Lots of people who have been doing it for thirty years. They have vastly more information at their disposal about where the twenty-seven are coming from than we do, because they are talking to all these people all the time.’4 He urged Jeremy Heywood to appoint a slate of a dozen negotiators under Oliver Robbins to lead on individual issues because he could not get across all the detail himself. The plan was rejected. Robbins would be up against Michel Barnier’s deputy Sabine Weyand, a ‘very smart’ German with three decades of trade negotiations behind her, and Didier Seeuws, a former chef de cabinet to Herman van Rompuy, the former Council president. Robbins would need to know everything from customs procedures to the life cycle of pelagic fish.

David Davis regarded the Commission as a smaller version of the Treasury – a group of people with a belief in the European project who were caught up in a ‘cauldron of emotions’ by Britain’s vote to leave. He believed that they would be ‘brought back to reality’ by the governments of the individual member states. Throughout the summer and autumn Davis travelled Europe meeting fellow ministers and special interest groups, trying to work out who might have interests that would align with Britain’s. The first thing he and David Jones, another of his Brexit ministers, found in their travels was that the rest of Europe was still traumatised by Britain’s decision to leave. Many could not comprehend that Brexit would even happen, so used were they to EU governments holding repeat referendums until they got the result they wanted. Another cabinet minister said, ‘Their initial reaction was one of extreme disappointment, charged with irritation that they were now going to go through a traumatic process which is of our making.’ Another minister estimated, ‘It took about three or four months before EU ministers came to terms with the fact that we were actually leaving.’ At a general affairs council meeting in Bratislava, David Jones was introduced to the Commission’s vice president, Frans Timmermans, whose first words betrayed his angst: ‘Well, how long do you intend to remain shackled to this corpse?’

In a bid to curry favour, ministers found themselves procuring tickets for a Liverpool football game for one senior EU politician. Davis also considered roping in Aston Martin ‘in the national interest’ to give Guy Verhofstadt a spin in one of their cars. The Belgian MEP, who was the European Parliament’s point man on Brexit, raced vintage sports cars. Davis needed all the tricks of the trade ahead of his first meeting with Verhofstadt on 22 November. When asked about the Belgian in Parliament two months earlier, the Brexit secretary had quoted the biblical line, ‘Get thee behind me Satan’. Davis meant he would not be tempted to comment, but the media wrote that he had called Verhofstadt the Devil. When they met, Verhofstadt entered into the spirit of things, greeting Davis with the words, ‘Welcome to hell.’ The talks were not quite that bad, but at their conclusion Verhofstadt’s MEP colleague Manfred Weber said, ‘I have not heard much as to how the British government wants to tackle Brexit and what Brexit really means.’ Verhofstadt was regarded in Downing Street as a voluble nuisance, but his role was important since the European Parliament would have to rubber-stamp a future trade deal. Davis had identified him as one of thirty key interlocutors – one in each of the twenty-seven countries, plus the Commission, the Council and the Parliament. He believed he needed to meet each of them three times in order to develop a relationship of trust.

In order to facilitate all this travel, Davis demanded the use of the prime minister’s official aircraft, dubbed TheresaJet by Westminster journalists, and the Queen’s Flight of the Royal Air Force, which is also used by ministers. ‘DD felt he was the “real” foreign secretary and so therefore thought he should be allowed to use the prime minister’s plane and to catch a royal flight,’ a DExEU official recalled. The request led to ‘an enormous battle’. Michael Fallon, the defence secretary, gave the green light but Simon Case – May’s principal private secretary at Number 10 – and Oliver Robbins, who regularly flew EasyJet, both resisted. ‘Olly totally disapproved and kept blocking the plane,’ the official said. ‘He didn’t really see why DD should be whisked by private jet across Europe.’ Davis won the day when he told Fiona Hill he would not do the trips unless he got his way.

The most important relationship for Davis to develop was that with Michel Barnier, the French former commissioner for financial services who had been appointed as the lead negotiator for the Commission. Barnier was, in Davis’s words, ‘very French’, a smooth and debonair character – in contrast with Davis, who sported the twisted nose of a boxer with more bravery than ability. The two had known each other since the days when they were both Europe ministers in the 1990s. Now they were friendly adversaries. Officials hoped Barnier would take a more pragmatic approach than Martin Selmayr. ‘Barnier is a vain, hopeless and tedious individual but he’s not as vicious as he’s made out to be,’ one undiplomatic diplomat said. ‘He actually wants to do a deal.’ Davis was similarly encouraged by a belief that Barnier wished to become European Union president when Juncker stood down in 2019 – perfect timing for Barnier if he could land a deal with Britain that spring.

Barnier’s hands were tied by the negotiating mandate he had been given by the member states. In their first substantive conversation, Barnier repeated the mantra, ‘no negotiation without notification’, and told Davis Britain’s demand that the divorce arrangements be negotiated alongside the new trade deal was a non-starter. The EU wanted the exit bill settled first, along with a solution to the Irish border and the thorny issue of citizens’ rights. Yet when the conversation turned to Northern Ireland, Barnier said, ‘You must not attempt to do the Northern Irish and Irish resolution bilaterally.’ Barnier had been involved on the EU side in the Good Friday Agreement talks which had secured peace in Ulster. He said, ‘I was very involved in this and I’m very keen that the Commission is involved in the resolution of the Northern Irish border problems.’ Davis readily agreed and reported back to May, ‘He spent the whole meeting saying “no negotiation without notification” and then began negotiating.’