Brexit Day 8: 'First you exit, then you negotiate'

That was the week that was

Thankfully today’s issue is a bit shorter than it has been the last couple of days. An extremely apt quote sent by a fellow John Le Carre fan: “There are moments which are made up of too much stuff for them to be lived at the time they occur.” (hat tip: Cicero alumnus Ed Lakin). The frequency of these notes may slow down next week given the news cycle. I hope everyone has a relatively peaceful weekend.

Conservative leadership: Gove launches, slams big business

Having washed ‎the blood off of his hands Michael Gove launched his campaign today. A rather rum affair compared to the slick May launch yesterday. His speech didn’t give any sense of his ambitions for future UK-EU relations or the UK’s trade relations with either the EU or the rest of the world. He didn’t use the phrase “Single Market” at any point. He did, however, slam big business and financiers. “I am a passionate supporter of free markets, free trade and free enterprise. In the last two decades free enterprise economics has lifted millions out of poverty across our planet. But in our own country far too often the rewards have gone not to risk takers and job creators but insiders in our financial system and big business who have rigged the market in their interests.” On immigration he said “I will end free movement, introduce an Australian-style points-based system for immigration, and bring numbers down.” He went on “We can reform capitalism, give shareholders more control over how public companies operate and ensure pay once more incentivises the right sort of corporate behaviour.”

PS If you still can’t get over Gove’s knee-capping of Johnson yesterday, the Telegraph’s Gordon Rayner has a gripping piece about the ‘cuckoo nest plot’. The Sun’s Tim Newton Dunn and Harry Cole cover it here in a breathless account of parties, country cottages, swish offices and frenzied text messaging. Our own Joe Moor thinks that Gove’s move is an olive branch to his friend David Cameron.

Liam Fox wrote in a piece setting out his stall in the Daily Telegraph “I do not believe there is room for membership of the single market, if it entails free movement of people. We do not need to be part of the single market to sell into the single market; countries like the US do perfectly well in that position.” Fox is one of the most ardent promoters of the Special Relationship in Parliament and he has been talking about a points based immigration system for some years.

Still keeping a low profile is Andrea Leadsom, possibly the dark horse of this competition. She’s attracted the support of number of the BeLeavers, including Owen Paterson and Steve Baker. The Sun story referenced earlier suggest that she had been ready to back Boris in exchange for the Chancellorship and Boris had written her a note to that effect to be delivered by Nick Boles. Boles never delivered the note, it is alleged. Andrea Leadsom anecdote: at a fringe meeting at Conservative conference I was asked by a fellow audience member what I thought of Andrea. I said ‘She’s great’. ‘Good,’ the lady replied ‘she’s my daughter’.

George Osborne has been in submarine mode over the last few days and I think he’s preparing to surface. Key development today is that he announced that he is abandoning his flagship target to get the UK back into surplus by 2020 as the economy is showing clear signs of shock (Mark Carney called it post-traumatic stress disorder yesterday). This follows Theresa May’s pledge that the surplus target would be jettisoned under her leadership. It transpires that Osborne acolyte Matt Hancock is backing Theresa May. Is Osbo preparing to back May?

Remember Guido has the runners and riders here. At the time of sending, 152 of the 330 Tory MPs appear to have given support for one or other of the candidates. May is ahead handily at the moment. Many big beasts including Philip Hammond (remain), George Osborne (remain), IDS (leave), Villiers (leave) are yet to declare their support.

Labour leadership: It’s quiet. Too quiet.

Corbyn is hanging tough today and no evidence yet that he is planning to fold. John McDonnell re-arranged some deck chairs on the Titanic, with a speech on post-Brexit economic policy. He said that Corbyn would face a leadership challenge in days. Thanks, John. There were one or two points worth noting. First, the Shadow Chancellor said the decision of the people must be respected and could not be reversed. He also made some interesting observations on immigration: “Let’s be absolutely clear on the immigration issue. If Britain leaves the European Union, the free movement of people, of labour, will then come to an end.” Labour needed also to “consult with the British people on the nature of the relationship we have with regard to the free movement of people”, he said.

UKIP: Carswell expulsion?

Via Guido: Farage says Douglas Carswell could be booted out of UKIP on Monday for what appears to be insubordination. If that happens, what are the odds that Carswell takes the Conservative whip again? I think pretty darned high.

Future relationship with EU: “First you exit, then you negotiate” - Cecilia Malmstrom

Posturing over the single market is beginning already. Trade Commissioner Malstrom offered an opening gambit yesterday in an interview with the BBC’s Mark Urban. She said that the divorce must be concluded before the future trade relationship can be defined. While the UK will remain a member of the EU during the Article 51 process, EU rules prohibit the UK from negotiating trade deals with other countries. If the UK leaves without a new trading relationship with the EU in place it will move to trade under WTO rules.

Why the resistance to parallel discussions? First, there's French and German elections in 2017 which will complicate matters. At the same time TTIP is running into real problems on both sides of the pond. Do they really want to chuck a hard-fought negotiation with the UK on trade into the mix as well? And of course, timing is one of the most important negotiating ploys each side has and suggesting that a trade deal can only be conducted once the divorce is settled places pressure on the UK to conclude Article 50 as quickly as possible.

BUT...Risk that the European Commission stance is making the Leave side's argument for them. If the EU is really more comfortable as a walled garden than an open trading bloc, they say, then maybe it is better to go. Remember, nothing makes free-traders in the Leave camp feel more tingly than the idea that the UK will fast-track a clutch of non-EU deals with Commonwealth allies. That will show them!

An opposing view from Cicero’s James Hughes: ‘I think Liam Fox’s argument that other leaders won’t block UK access because it would be damaging to their own economies suggested a very short memory. I can certainly think of a recent example of a country doing something economically irrational to deal with a populist party at home’. A fair point, well made James.

Parliament gets stuck into Brexit

The Treasury Committee is hearing evidence on the UK’s future economic relationship with the European Union at 1000 on Tuesday. Answering the questions: Professor Michael Dougan, Professor of European Law, University of Liverpool, Dr Robin Niblett CMG, Director, Chatham House, Sir Emyr Jones Parry, former UK Permanent Representative to the United Nations and Raoul Ruparel, Co-Director, Open Europe

Lords EU Select Committee meets on Tuesday at 4pm. Giving evidence are Rt Hon David Lidington MP, Minister for Europe and Rt Hon Oliver Letwin MP, Chancellor of the Duchy of Lancaster and Head of the Whitehall EU Unit. A must watch for Brexit geeks. Cicero will be providing analysis for clients. Liddington has held the Europe minister post since 2010 and knows the ground intimately. We understand Letwin has already begun meetings with key politicians on the subject.

Article 50 corner: Another great paper from the House of Commons Library, this time specifically on the Article 50 process. The latest in what colleague Tom calls the Article 50 Trilogy. All three below:

Austrian bombshell

Austria’s constitutional court has invalidated May’s presidential election for procedural failings (they found no evidence of manipulation, however). Far-right Norbert Hofer of the Freedom Party was pipped by former Green Party leader, Alexander Van der Bellen by just 30,000 votes, causing a huge sigh of relief across Europe’s capitals. A new election could take place September opening the door to another political nightmare in the heart of Europe. Please, no more!

Micro politics

All politics is local. Small results here and there can give an interesting temperature check (even though turnouts are small). A borough council by-election from Mole Valley in Surrey yesterday… [Full disclosure: I am a Surrey Conservative and it gives me no pleasure to include this result]

Sadiq and ye shall find

Sadiq’s appears to be stepping up and his office is looking for input from business. He’s pressing the Government for single market access and securing London’s ability to compete in the global market for talent. We’ll certainly be doing all we can to support the Mayor in his efforts to promote the interests of the City. It confuses me that a leftish Labour mayor is going into bat for business, whereas some Tory leadership candidates are spilling out populist anti-business bilge.

Companies and markets

The big market news today is the fall in bond yields. This makes borrowing cheaper for the Treasury – and it looks like they’ll be doing more of that in this cycle than we anticipated given Osborne’s announcement today. Low yields are not a vote of confidence in the global economy – they are opposite. Exceptionally low returns mean that people are risk-off and are expecting more QE. This is bad news for pensioners who will get lower annuity rates, lower returns if they are drawing down, and is another kick in the groin for defined benefit pension scheme liabilities, which increase as returns on gilts fall. This is not project fear, these are simply the facts.

Chart - Bloomberg:  UK Govt Bonds 10 Year Note Generic Bid Yield – last 30 days GUKG10:IND — *Chart - Bloomberg: UK Govt Bonds 10 Year Note Generic Bid Yield – last 30 days GUKG10:IND*

Just look at that yield go off the cliff after the referendum result…

Britain’s aviation sector is already facing the implications of Brexit. A decision on London airport capacity has been kicked down the road again. News that EasyJet is thinking about its domicile. I am going to bet Ireland is on that list of possible new homes.

British Airways owner IAG issued a profits warning last week, saying that bookings had begun to weaken even before the vote and so it was little surprise that an email popped into my inbox yesterday. Yes, the BA world sale is on and there are some great fares on offer. Every cloud... A Club World return ticket to Austin, Texas can be had for less than £1,500. And if you fancy New York click here.

It was Andrew Bailey’s first day as the boss of the Financial Conduct Authority, taking over from interim chief Tracey McDermott. Formerly of the Bank of England and Prudential Regulation Authority. We wish him well.

‎Trade bodies: a new hope

Trade bodies have had a rough ride over the last few years. Some of the biggest and most powerful in the City have faced restructurings and member resignations. Brexit is potentially the shot in the arm they need. It’s time for corporate Britain to get its priorities straight and to fight its corner with a united voice.

Paul Mason cuts through the bull

Yeah, but it’s not as fun as my email is it?

Reality check: 100 years since the battle of the Somme

In a moving act of commemoration, Waterloo Station was filled with young men in WWI battle dress this morning (see my pic above). At 0730 on this day in 1916, tens of thousands of young soldiers went over the top. 20,000 British soldiers were killed on the first day of the 141 day battle. France lost 1,600. Germany perhaps 12,000. On my walk into work I struggled to hold back the emotions that have built over the last week or so. Politicians on all sides should remember that this is not a game, this is real life.

Tweet of the Day

Li Lo has agreed to switch on Kettering’s Christmas lights as an apology for dissing the Northants town on referendum night. Philip Hollobone MP is delighted.

Mouthing off:

Contrition: