Brexit

“You got us into this mess…”

By Lexington Communications

In normal times it would be hard to imagine a Cabinet in which Boris Johnson, David Davis and Liam Fox are the leading lights. But these are not normal times and Theresa May’s first appointments underlined the spectre of Brexit which looms over the new government. The new Prime Minister is not going to allow the leading Brexiteers to avoid accountability for their referendum campaign promises. The rest of the Cabinet decisions represent a balance of settling old scores, rewarding allies, achieving better gender balance and bringing on new talent.

The new structure of Government

The task of negotiating Britain’s withdrawal from the EU is enormous and overshadows any domestic agenda that the new PM would otherwise wish to pursue. Indeed it has forced her to reshape the very machinery of government. A new Department for Brexit is in the process of being established alongside a new Department for International Trade. More broadly, BIS and the Energy and Climate Change departments have been merged into a new Department of Business, Energy and Industrial Strategy. Higher education and skills have been transferred to the Department for Education.

A new culture of Government

With Davis and Fox given the critical EU and international trade roles, Boris Johnson has been left to try and forge a new purpose for the Foreign Office in a post-EU world. While he has been appointed to a senior position, in some respects Boris now cuts an isolated figure – distrusted even by Brexiteers.

More widely, the new Cabinet is being seen as powerful assertion of Theresa May’s authority, with a number of new faces in key roles. The removal of a sweep of figures closely associated with the Cameron administration, most notably Osborne, Gove and Letwin, represents a significant reboot of the government and a cultural shift away from the Notting Hill set and towards the traditional Tory right.

Davis, Fox and Hammond

One of the most critical relationships in the new government will be between Davis, Fox and Hammond. The new Chancellor was arguably the strongest advocate for Remain among the new Cabinet and he now faces the daunting task of managing the UK economy through the shock of Brexit. In his first major interview this morning, he acknowledged that we are “entering a new phase. Our economy will change, and it will require different parameters.” While he emphasised that securing protections for the UK’s financial services industry would be a key priority, it is likely to be a challenge.

Brexit means Brexit

The decision to place leading Brexiteers in the key EU negotiating roles was designed to reassure eurosceptics that Theresa May is not kidding when she says “Brexit means Brexit” and to force the principal Leavers to take responsibility for the outcome they secured.

Initial reaction suggests that the appointments have indeed appeased eurosceptic voices. Nigel Farage called them “inspired choices” and said “I feel more optimistic now”.

Whether that optimism extends to the wider world and in particular to the business community is another matter. The reality of negotiating Brexit may be rather more difficult and complicated than the process envisaged by those tasked with undertaking it.

Both Liam Fox and David Davis have suggested that if the EU plays hardball they will seek to bypass Brussels by negotiating directly with individual member states. But that is unlikely to be a straightforward task. None of the big European players wish to undermine the EU.

Free movement the key problem

That is why the central problem of negotiating market access whilst controlling free movement is so difficult. Theresa May’s Government is committed above all to controlling immigration. That was a position she was forced to make crystal clear during the short-lived leadership campaign.

It was also underlined by Liam Fox, who stated that “It is quite clear that the public rejected the concept of free movement of people and it would be a betrayal to entertain any trade deal where this was the price to be paid.”

But that presents a problem as the EU cannot agree to a deal that would give the UK better terms than actual members of the club. Doing so would undermine the entire union and that is something central players in the EU, most notably Germany, are determined to avoid. So if the UK Government is unwilling to accept free movement of labour then it will need to pay a different price to gain a trade deal. Many expect that financial services will be the sector that suffers.

A management challenge

Today’s appointments are a clear statement of intent from May and her advisers. The changes in both the machinery of Government and around the Cabinet table are dramatic and designed to signal a new direction. With the departure of so many Cameron and Osborne supporters May will also be better placed to follow her own agenda. However, to deliver Brexit she has brought in some very big personalities with strong views. Once May is beyond her honeymoon period managing these new ministers could be an extremely challenging task.

A pragmatic approach greets business

The headlines will inevitably dwell on the Brexiteers but May has subtly signalled today that her Government is open to business. The new Business Department may have lost responsibility for Higher Education and Skills but it will absorb energy and has a powerful remit to pursue an industrial strategy. This is a firm break with the past and should reinvigorate civil servants who have felt hamstrung by Sajid Javid’s ideological desire to free the Government of interventionist policy. This will change.

It’s worth noting that a number of pragmatic thinkers will sit around the Cabinet table in key departments where business will want to engage. Philip Hammond as the Chancellor will feel liberated from the austerity agenda of his predecessor, and while Greg Clark is sometimes dismissed as a technocratic, this is arguably exactly what business needs. Plus, Chris Grayling at Transport will ensure that key decisions related to the UK’s infrastructure needs will feed directly into the Government’s overall business strategy.

There is often tension between the Treasury and the Business Department but No. 10 will ensure that business is being listened to. Brexit will create a defensive mind-set in Whitehall where the UK’s competitiveness is now in question. Politically May cannot afford to lose her grip on this and so we should expect a more harmonious relationship between departments, combined with a sympathetic ear that will be open to challenge and also practical policy solutions.

Cabinet Ins and Outs

In

Philip Hammond – Chancellor of the Exchequer
Boris Johnson – Foreign Secretary
Amber Rudd – Home Secretary
Michael Fallon – Defence Secretary (No change)
Liam Fox – International Trade Secretary
David Davis – Secretary of State for Exiting the EU
Liz Truss – Justice Secretary
Justine Greening – Education Secretary
Gavin Williamson – Chief Whip
Patrick McLoughlin – Party Chairman and Chancellor of the Duchy of Lancaster
Baroness Evans – Leader of the House of Lords
Jeremy Hunt – Health Secretary (No change)
Chris Grayling – Transport Secretary
Andrea Leadsom – Environment Secretary
Damian Green – Work and Pensions Secretary
Sajid Javid – Communities and Local Government Secretary
James Brokenshire – Northern Ireland Secretary
Greg Clark – Business, Energy and Industrial Strategy Secretary
Priti Patel – International Development Secretary
Karen Bradley – Culture Secretary
Alun Cairns – Welsh Secretary (No change)
David Mundel – Scottish Secretary (No change)
David Gauke – Chief Secretary to the Treasury

Out

George Osborne – Chancellor of the Exchequer
Michael Gove – Justice Secretary
Nicky Morgan – Education Secretary
John Whittingdale – Culture Secretary
Oliver Letwin – Chancellor of the Duchy of Lancaster
Theresa Villiers – Northern Ireland Secretary (resigned)
Stephen Crabb – Work and Pensions Secretary (resigned)
Mark Harper – Chief Whip (resigned)