We have not sent any Boscobel bulletins recently, as the firm has been flat out on the campaign to extend the runway at Heathrow, instead of building a 3rd Runway. We won the support of most business commentators and of numerous MPs because the concept is cheaper, quicker, quieter and simpler to construct. It has sadly thus far been thwarted by the Department for Transport and Heathrow Airport Ltd itself. Following the significant vote in Parliament for the 3rd Runway, our client is examining various legal options and has already complained to the Competition and Markets Tribunal.
In the meantime, our thoughts now turn to Friday 6th July when, not only will England – hopefully – be preparing for a critical World Cup game, but the Cabinet is scheduled to meet at Chequers to decide its strategy for EU negotiations.
If we don’t have a Cabinet resignation either before, during or after the meeting it will be a miracle.
The matter at hand is to agree what sort of Customs relationship we are trying to negotiate with the EU. At this stage, nobody has properly asked the EU for their view. This will also need to be agreed by Parliament via an amendment to the Trade Bill in coming weeks.
Customs and Chequers
Until yesterday, two verbally inelegant solutions were on the table: either a) the New Customs Partnership (effectively inside the Customs Union, remitting revenues to the EU but allowing lower UK duties via a return mechanism with HMRC) favoured by the Prime Minister; or b) a Maximum Facilitation arrangement, outside the Customs Union but using enhanced software to enable smooth-running trade. The latter is favoured by Brexiteers.
Having spoken to various CEOs who actually import and export items, including as part of complex supply chains, I am convinced this is a bizarre argument. One retail CEO explained to me how large companies in Asia use “bonded factories” to ensure no duty is paid during the manufacturing process. A CEO of a large port has explained that only two containers were opened on his quaysides last year, because all import/export is conducted via trusted trader schemes and policed at place of origin or destination.
So, this issue has become a political cultural war, a linguistic proxy for re-fighting the referendum via other means. The front line may be in the Cabinet, but vast divisions have been mobilising miles away. Just to make things easier, massive egos are also involved and the Prime Minister sits in the middle, apparently unable to make a decision, and refracting everything through the lens of her own survival.
Just to make things even more complicated, my understanding is that the issue of the Customs Border in Ireland isn’t really about Customs at all, but alignment in goods regulations, especially agriculture.
I sit on the advisory board of a think tank called Open Europe and we have proposed what I believe is a sensible compromise, whereby the UK remains aligned with EU goods regulations, but goes for an equivalence regime for services, as that is where the bulk of our competitive advantage lies. On Customs, we have proposed a Max Fac type arrangement. This idea has been well received by nearly everyone we have spoken to.
What is not commonly appreciated is the Cabinet is not only divided on Brexit, but other matters too, including the small matter of tax and spending. There are also divisions within the factions too. The Tory Remainers are also divided, between those who are leaning towards “enough already, let’s just get on with it” and those in the Treasury and the Department of Business who wish to draw out Brexit as long as possible in the hope it goes away. There is no economic strategy to speak of.
Intrigue in the betting market
Late summer, early Autumn is the traditional time for a Conservative leadership contest. Thus far, one has been avoided for four reasons: the need to get on with the EU exit bill; the fear among moderates that it would result in Boris Johnson as Prime Minister; the worry that it would result in three months of turmoil; and the lack of a credible alternative to Mrs May.
All these obstructions have suddenly fallen away. The Bill has been passed and the question is now who will implement the next stage of the strategy. Boris Johnson has apparently been skewered by the Heathrow decision and made to look foolish by the principled resignation of the trade minister Greg Hands. As Brexit day gets closer next March, 1940 custom and practice is likely to override the actual rules of a leadership contest and thereby provide cover to avoid both a vote of the Conservative party membership and an immediate General Election.
Critically, a potential alternative to Mrs May has emerged in the form of Sajid Javid, the new Home Secretary, who has got off to an excellent start. His “pulled-myself-up-by-my-own-bootstraps” background and apparently Thatcher-esque economic views have created a whiff of excitement.
Media interest in Mr Javid has also excited the range-bound political betting market, which like Westminster has been in stasis since the General Election last year. Over the weekend, after he topped a poll of Conservative party members, the Betfair website pushed him into the favourite position as the next Conservative leader, with an implied probability of 20%, ahead of the next most popular, Michael Gove, with a probability of 15%.
The price has since dropped back. Despite Mr Gove’s reputation in popular culture as a treacherous fellow, Tory MPs trust him to get things done.
In politics, as in markets, late summer/early autumn is the traditional time for brouhaha. We advise watching not just the news, but prices, for signs of further volatility.