Brexit Day 12: 'Theresa's a difficult woman, but you and I worked for Margaret Thatcher'

This issue is later than usual so that the result of the first round Tory leadership ballot could be included. Remember: Chilcot’s coming tomorrow…

Conservative leadership: first ballot vote means Fox trots – May enjoys support of half of MPs

The first round of the Conservative leadership election took place today, with one of the five to be eliminated before the next round of voting on Thursday afternoon. Chairman of the 1922 Committee, Graham Brady announced the results just after 1830 and as expected Liam Fox was eliminated, meaning his 16 supporters will now be courted by the remaining candidates.

Results:

1.       May – 165
2.       Leadsom – 66
3.       Gove – 48
4.       Crabb – 34
5.       Fox - 16   Eliminated

329 votes were cast.

May collected half of all the votes available. The key question now is whether it is Leadsom or another candidate in the second slot that goes to the membership. Is a tactical ‘stop Leadsom’ strategy going to be put into play? That is possible if Gove picks up votes from eliminated candidates, and is ‘lent’ support by May supporters in the final round.

Leadsom has had a mixed 24 hours. She received a boost of sorts yesterday when Bo Jo lent his support to her and a Con Home poll indicated she enjoyed deep support in the party membership. However, the hustings last night were described by Huff Po as a ‘car crash’. She was reportedly hammered for failing to distance herself from UKIP donor Arron Banks, which it must be said, is a very awkward position for her to be in. Her pitch, the Sun reports, was ‘bankers, Brussels and babies’ and it went down like a ‘cup of cold sick’ said one MP. While the stop Leadsom spin machine is clearly in overdrive, it is concerning that someone angling to be PM reportedly first said that Article 50 would be triggered immediately, and then later suggested said it wouldn’t be. This is something you need to be pretty specific about if you are taking the UK out of Europe.

Unless all the candidates but one withdraw, the membership will have the final say. A YouGov/Times poll has a wildly different result to the Con Home poll yesterday, and puts May ahead by a country mile (Con Home had Leadsom slightly ahead of May). Oh, how quickly we revert to grabbing onto whatever data points we can, regardless of their reliability. A clear case of what you see is all there is.

Labour leadership

Tom Watson is meeting the unions today as ‘a last roll of the dice’. Angela Eagle says she has enough support to mount a challenge. It is not really clear what agreement Watson can get or will get. This is looking rather like a Mexican Standoff – or perhaps – mutually assured destruction.

Future relationship with the EU

The status of EU nationals in the UK is proving to be hugely controversial. Andy Burnham has achieved something by securing an emergency debate in the Commons on the matter tomorrow. May is not budging on the issue, and nor is the government. For now.

The FT reports that the gap left by the resignation of Lord Hill as the UK’s Commissioner in Brussels may be filled by career diplomat, Sir Julian King, who is currently the UK’s ambassador to France. King has a long record working in Brussels, and has been described as a ‘consummate FCO man’. Avoiding a political appointment may smooth the ground for Sir Julian with the European Parliament which will undoubtedly make life extremely difficult for anyone vaguely political.

Juncker continues to enjoy trolling Leave’s beleaguered leaders. He told the European Parliament that “Those who have contributed to the situation in the UK have resigned – Johnson, Farage and others. They are as it were retro-nationalists, they are not patriots…Patriots don’t resign when things get difficult; they stay,” he added.

Today in Parliament

Oliver Letwin, who luxuriates in the magnificent title of ‘Minister for Government Policy’ gave evidence to the Foreign Affairs Committee on the new unit that will support the Brexit negotiations. According to Letwin the unit will:

Build a team around Oliver Robbins in the Cabinet Office, drawing from departments such as FCO, BIS, Treasury and others with relevant expertise. The total size of the Unit is yet to be confirmed. Letwin and Robbins are currently identifying gaps in expertise such as trade negotiators. Preparations are underway to either recruit new staff or train up current civil servants.
Identify the constraints and background situations that will need to be understood by the UK’s negotiators. E.g detailed analysis of tariff and non-tariff barriers that would be faced by specific goods or services without a free trade agreement.
Develop options papers for the present Cabinet, showing how a post-Brexit UK-EU arrangement could maintain current agreements such as continuing co-operation on security or funding of innovation and science etc.

Our team also covered the Treasury Committee’s hearing with experts Profess or 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 and the Foreign Affairs Committee’s session with Europe Minister David Liddington. If you are a client you will have received this in your monitoring. If you are not a client, why not? You are missing out.

Companies and markets

My reserves of optimism are depleted today. Volatility was to be expected, of course. Things could yet return to some semblance of normality. But what we see today are stark reminders of the forces that Brexit has exposed the economy to. Sterling hit a thirty-year low against the dollar, Standard Life and Aviva have suspended all trading in their UK commercial property funds and the Bank of England issued a downbeat Financial Stability Report. Damn those experts and their facts.

Mark Carney has been more visible in the last few days than at any time during his tenure of the Bank of England. The Governor and the Bank seem to have come through this with an enhanced reputation (despite the efforts of some to accuse the Bank of bias in the campaign). It is encouraging that one institution in our public life is functioning correctly. The headlines is a reduction of the UK countercyclical capital buffer rate from 0.5% to 0% of banks’ UK exposures with immediate effect. The FPC expects to maintain this low level at least until June 2017. This is to try to keep lending flowing in the economy. In addition The FPC has identified the below channels through which the EU Referendum could increase risks to financial stability:

Financing the UK’s current account deficit (which is high by historical standards)
The UK commercial real estate market (which had seen sharp inflows and in which valuations were stretched)
Household indebtedness (making households vulnerable to loss or reduction of earnings)
Subdued growth in global economy
Fragility in the global financial system

The Treasury issued £2.5bn of 5 year debt at just 0.38 per cent this morning – the first issuance since Brexit. Given how cheap it is for the Government to borrow, I think a Keynesian stimulus package could very easily turn up in the Autumn Statement. Mark Carney has said that we are nearing the limits of what monetary policy can achieve and that means that, in the event of a slowdown, the only lever the government can really now pull is a demand-side stimulus. While Brexit may eventually unlock a number of supply-side reforms (lower taxes, more flexible regulation) their impact will not be felt for some time. Note that Tory leadership candidate Stephen Crabb has already pledged a £100bn fund to finance infrastructure in his campaign. The most gobby of UK economists, Danny Blanchflower, makes a similar point but also can never resist an opportunity to attack George Osborne for austerity policies. (I don’t actually agree we’ve seen austerity in the UK, Osborne’s spending plans have been relaxed considerably since 2010).

My bellweather stock, Lloyds Banking Group, has drifted downwards from 56.5p towards 50p this week :(

Video of the Day (of the month?): Ken Clark trashes everyone except for Theresa (and even she’s bloody difficult)

Ken Clarke says what he really thinks of the leadership candidates in an apparently off-the cuff discussion with Malcolm Rifkind. If the remarks were off the record, a bit dubious for Sky to release them.

Highlights:

Rifkind on Gove: So long as he’s not in the final two I don’t mind
Clarke on Gove: With Michael as Prime Minister we’d go to war with at least three countries at once
Clarke on Boris: The idea of him as Prime Minister is ridiculous
Clarke on Leave: I don’t think Andrea Leadsom or Boris Johnson are actually in favour of leaving the EU…it was just that the members were going to vote Leave
Rifkind on Leave: I don’t think they cared much either way
Clarke on May: Theresa’s a bloody difficult woman but you and I worked for Margaret Thatcher