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The bankers cannot believe their luck

The disgrace of the political class has been the salvation of the bankers. And lax regulation has le

Until the drama over MPs’ expenses, workers in the financial services had been reeling from a succession of blows: collapsing banks, nationalisations, frozen bonuses, job losses and contemptuous, withering condemnation by the public and by opinion-formers in the media, church pulpits and parliament. An optimistic scenario was one of slow rehabilitation under a less permissive regime involving tougher regulation, partial public ownership of banks and a diminished, chastened City.

Now the bankers can’t believe their luck. A couple of days after the first revelations in the Daily Telegraph, the headline in the City’s free newspaper City AM was a shout of orgasmic release: “Now THEY can’t lecture US.” It said it all. Collapse of moral authority and politicians’ will. Back to business as usual.

The dangers of drift were highlighted in the speech given at Mansion House on 17 June by Mervyn King, governor of the Bank of England. He publicly expressed discomfort at the idea of banks that are “too big to fail”: he has concluded that such banks are simply too big. But the government is reluctant to tackle these banks, as the conduct of Lord Myners and the institutionalised passivity of UK Financial Investments Ltd (UKFI) – the Treasury-backed bank shareholder body – indicates. Instead, there seems to be a yearning to disengage government from the financial sector as quickly as possible. Political developments have made that disengagement easier to achieve, now that parliamentarians, including members of the Treasury select committee, have been collectively discredited, and power within the Labour government has shifted from a wounded Prime Minister to a revitalised Chancellor articulating the Treasury line.

It is deeply worrying that some of the most important policy questions for a generation are now being decided by default and in a political vacuum. How can a semi-nationalised banking system best serve the different but overlapping interests of UK bank borrowers, depositors and taxpayers, as well as private shareholders and bank executives? How should the systemic risks of banking – and the City generally – be managed through regulation, in order to safeguard the wider UK economy? Most important, is it actually possible for the UK to play host to a major financial service sector?

The response to all these questions is a lazy, uncritical, self-serving one: that, bar a few regulatory tweaks that will need to be made, the previous regime was essentially fine. The bankers’ view is that UK politicians need to get off their backs as quickly as possible and get the banks back into the private sector; to reverse “penal” (ie, 50 per cent) marginal tax rates; and to stop the European Commission, or more self-confident UK regulators, from “undermining the City’s competitiveness”. These arguments are winning.

Indeed, there is a danger that the counter-revolution could soon become a rout.

Yet it is only a matter of months since half of the British banking system collapsed and had to be rescued by the state through total or partial nationalisation. Thanks to that intervention, the banks have stabilised (if nothing more). Several small banks are now fully nationalised; RBS and the Lloyds Banking Group are partly nationalised; the two remaining global banks (HSBC and Barclays), along with the remainder of the sector, depend on a variety of implicit or explicit guarantees.

How we got to that point has been discussed elsewhere (including in my book The Storm): I am now concerned with the future. There is a bifurcation of paths opening up. One route builds on the experience of recent bank crises in Scan­dinavia, Israel, Korea and elsewhere, including the US, whose so-called Resolution Trust model helped to limit the savings and loans crisis of the late 1980s and early 1990s. Following this route, the state leads and manages a clean-up and restructuring of banks, usually within a decade or so. Approaches have varied, but there are some common elements: the wiping clean of the slate, in respect of losses incurred by existing private shareholders and the removal of failed management; fresh, taxpayer equity capital; structures to ensure that lending can continue unhindered to good, solvent borrowers; the valuation and active management of “bad” assets, in order to retrieve whatever value is left; then, in due course, the selling off of some or all publicly owned banks to achieve maximum return to the taxpayer and leave a varied ecology of properly regulated national banking institutions.

Some of us thought that was where the government was originally heading. After the October rescue, there were some tough-sounding conditions on new lending and curbing bonuses and, for a while, as it basked in the glow of in­ternational approval, the government seemed to be on the right track.

But it has gradually become apparent that we are being taken down a different route, where government money and guarantees are used to facilitate a quick return to “business as usual”. UKFI has been populated by financiers rather than business people with experience as bank customers. The public-sector shareholders seem to have had no quarrel with bank management’s efforts to build profitability and deleverage as quickly as possible.

The Asset Protection Scheme introduced in January also provides insurance cover for “toxic assets”, which means the government has taken on an open-ended risk without a corresponding “upside” for the taxpayer. This route was chosen in preference to fresh government equity capital precisely because it makes a quick return to private-sector ownership easier. There is now a danger of premature reprivatisation, which would leave the taxpayer with a vast toxic dump of losses and a poor price for the share sale. There are already rumours that Northern Rock is being lined up for a rapid sale.

If banks are to return to “normal” commercial operation under private ownership, the issue arises of how they should be regulated. The Cruickshank report on banking, commissioned by Gordon Brown a decade ago, posed the central question: why should banks be allowed to pursue the maximisation of shareholder value – and management bonuses – when they are underwritten by the taxpayer? This question has never been answered properly. Banks should either surrender their protection and compete like other firms, or be protected and have their profit regulated like utilities. In the wake of a banking crisis, the logic is even starker. In the past few weeks we have seen leading executives at Barclays awarding themselves millions while the bank ultimately remains dependent on government guarantees, despite its precarious independence. It is not surprising that executives of the semi-nationalised banks want to follow suit.

What has brought the issue to a head is the judgement that the major UK-based banks are “too big to fail” and have to be rescued in a financial emergency. This concept is an economic and democratic outrage. Either they must be subject to tight state control or they should be broken up so that they are not “too big to fail”. The point has been grasped, improbably, by ministers in banker-friendly countries such as Switzerland, and by our own central bank’s governor. Yet ministers today seem no less terrified of confronting the banks than when Brown initially fled the battlefield a decade ago.

One solution would be to restrict protection, including deposit protection, to “narrow banks”, confined to lending out no more than they receive in deposits. Other banks would operate competitively but be stripped of any protection. I, for one, am attracted to the concept; but it would involve a revolutionary change, a discontinuation of fractional banking altogether, and in the short run it is unlikely to be adopted.

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­Who said what about
the banking crisis

The financial services sector in Britain, and the City of London at the centre of it, is a great example of a highly skilled, high-value-added, talent-driven industry that shows how we can win in a world of global competition.
Gordon Brown, June 2007

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.
Chuck Prince, Citigroup CEO, July 2007

We cannot have a situation where the banks are able to privatise their profits and nationalise their losses.
Vince Cable, April 2008

We can’t tell every bank what to do.
Alistair Darling, April 2008

Where there is excessive and irresponsible risk-taking, that has got to be punished. The day of big bonuses is over.
Gordon Brown, October 2008

We had ten years of record growth when I was prime minister. I have, unfortunately, come to the conclusion that it was luck.
Tony Blair, January 2009

The government is clearly playing for time in order to avoid doing anything to upset the bankers.
Vince Cable, February 2009

Royal Bank of Scotland has the largest balance sheet in world banking so it is critical that Stephen succeeds.
Sir Philip Hampton, RBS chairman, defends the pay deal for the new RBS CEO, Stephen Hester, worth up to £9.6m, June 2009

A less drastic way of dealing with overgrown banks would be to split off the investment banking arms of the main global banks – what Mervyn King calls the “casinos” – and to confine government protection to the remaining “traditional” banking wings. These would then operate as regulated utilities: the model that broadly prevailed in the United States before the repeal of the Glass-Steagall Act a decade ago. The urgent need to change our system is highlighted by the ambition of Barclays Capital to become “the premier global investment bank”: it is madness for the British taxpayer to be a last-resort guarantor for this kind of business. To be sure, the demarcation is not clear-cut: there is high-risk “traditional” banking and low-risk investment banking, and the separation of roles would not be straightforward. The big banks – HSBC and Barclays – argue that they would be stopped from tapping into the securitisation markets (which may, after recent disasters, not be quite the loss they believe it to be). There is also the implied threat that global banking operations will be withdrawn from the UK.

The government must face down this kind of blackmail. The British taxpayer simply should not be made responsible for the risks that global banks take outside our regulatory jurisdiction. There are undoubtedly technical difficulties in separating out those aspects of global banks that the government can guarantee and those it cannot, but these problems cannot be an excuse for bottling out completely.

One lesson of the financial crisis is that the “light-touch” regulatory approach was a failure. It may have failed in part because of the poor quality of bank supervision rather than the absence of regulation. And the rapid innovation of capital markets undoubtedly ran ahead of regulators’ capacity to monitor activity effectively. But the vast cost to the British taxpayer – and the wider economy – of the banks’ failure and the consequent bailout make it imperative that regulation be strengthened.

We are now at a crunch point. The need to strengthen and update the regulatory regime has collided with the financial institutions’ growing confidence that they can keep the state off their backs. Self-serving arguments are being employed, notably that regulation will suppress “innovation”. It will. It should. We need more financial “innovation” like a hole in the head.

The other argument is that regulation (and 50 per cent tax rates) will undermine the City’s “competitiveness” and “drive away” banking and non-bank financial institutions. This argument has to be met head-on; the idea of a regulatory race to the bottom does not square with political and economic reality. Co-operation rather than regulatory arbitrage between the main jurisdictions will always be best, but if that co-operation does not materialise, the UK should not chase business by offering low standards that create wider risks for the UK economy. The arguments about City “competitiveness” are bogus, self-serving and dangerous. It is profoundly to be hoped that Brown, Alistair Darling, Ed Balls and others who fell for them so haplessly in the past have now learned their lesson.

The new regulatory agenda espoused by Lord Turner, chairman of the Financial Services Authority, is sensible and not especially controversial. Indeed, many in the City see it as a minor irritation, followed by a green light to get back to business as “normal”. It contains sensible elements – such as “macro prudential regulation” that would focus on systemic risks, rather than regulation of individual banks – and more controversial but basically prudent ideas, such as limiting loan-to-value ratios and/or multiples of income for mortgage lending.

Lord Turner has also supported the argument that the most dangerous forms of risk-taking in banking institutions can be limited by paying bonuses not in cash but in stock, redeemable after a period of years. As stock prices are depressed and the capital gains tax payable is only 18 per cent, any half-sober City trader will have worked out he should be doing this in any event. But it is not a silver bullet – the bosses at both Lehman Brothers and Bear Stearns had huge equity-related incentives, and look where they are today. These issues require pause for thought: there are bigger regulatory battles shaping up.

One concerns the proposal to establish a clearing house for complex financial derivatives so that they can be traded, netted and regulated. Properly regulated, these activities can spread risk and, in a general sense, add to stability. What is much more dangerous, as the recent financial crisis has illustrated, is to have a vast pyramid of paper claims – as in the CDS/CDO (credit default swap/collateralised debt obligation) “markets” – which cannot be settled in an orderly way through a clearing house. Important lessons can be learned from the recent collapse of General Motors. CDS contracts with a value in excess of $35bn were netted down to $2.2bn, causing little more than a ripple in the overall CDS market. The danger is that nothing will be done, setting up a huge systemic risk – and the next big crash.

One practical remedy would be to establish a clearing-house system as soon as possible. Big banks that make a lot of money from OTC (“over-the-counter”) trading are not happy: if they were forced to use a regulated exchange they would lose this business. In practice, complex, structured derivatives would therefore be prevented. A second issue is whether the London Stock Exchange – and the Bank of England as the lender of last resort – are big and strong enough to support a clearing house dealing with transactions valued at many times the size of the world economy. Co-operation with the US is potentially important. And perhaps a European approach is required, in order to draw on the bigger firepower of the European Central Bank, but that may unleash some dangerous political demons.

Meanwhile, the European Union has precipitated another major regulatory battle by putting forward proposals, both for strengthening European co-operation over bank supervision – reluctantly conceded to by the UK – and for toughening the regulation of hedge funds and private equity. Britain’s financial community has a collective paranoia about Europe, and there is envy of London’s currently predominant role and a distaste for the freewheeling “Anglo-Saxon” model (not that German, Dutch or even French banks behaved very differently in the crisis).

However, it is surely eminently sensible to ask, as the European Commission is doing, whether these new forms of financial intermediation are healthy and adequately regulated. There are some critics who question the value of hedge funds altogether and would be happy to see them regulated out of existence. But a more relaxed view is that there is a role for specialist financiers who pursue high yield via high risk – provided they do not depend on taxpayers’ guarantees or indirectly contribute to the systemic risk that taxpayers underwrite. The former has not been a problem in the recent crisis (no hedge fund has asked for government help), but the latter undoubtedly is. There is a proper debate to be had as to how hedge funds should be regulated: to treat the tentative proposals of the European Commis­sion as akin to a Napoleonic invasion threat is simply idiotic.

There is a more fundamental argument about the scale of Britain’s financial services industry in relation to the UK economy. I wouldn’t expect the City to vote for contraction, or for curbs on its freedom to operate, any more than I would expect turkeys to vote for Christmas. But the poultry farmer – the Labour government – cannot just ask the turkeys what they want. He has to be willing to wield a knife and cut some throats. A combination of national, European and global regulation is necessary to ensure that the vast negative externalities associated with the City do not exceed the (genuine) benefits that the UK economy derives from a successful, internationally traded, financial services sector. In addition, there will have to be a major structural adjustment out of traded financial services into other services and manufacturing.

Unfortunately a weak, demoralised, delegitimised Labour government is in no shape to face this challenge, and a Tory government pumped up by City donations would have no need or inclination to take it on. The opportunity for reform and renewal is passing us by and, if it does, financial crises will return with even greater ferocity in years to come.

Vince Cable, economic spokesman for the Liberal Democrats, is the author of “The Storm: the World Economic Crisis and What It Means”, published by Atlantic Books (£14.99)

This article first appeared in the 29 June 2009 issue of the New Statesman, The Great Escape

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The Brexit odd squad

The Brexiters are resilient and have the support of some unlikely foreign allies. Can they really topple the political establishment and lead Britain out of the European Union?

Look at the troops arrayed on the Leave and the Remain sides in the June referendum and you might think that our continued membership of the European Union is assured. On the side of staying in the EU are Britain’s four living prime ministers, the International Monetary Fund, the Treasury, most members of the Labour and Liberal Democrat parties, the Trades Union Congress, the Confederation of British Industry, the governor of the Bank of England, the head of the NHS, Britain’s three largest trade unions and the US president. Leave has Boris Johnson, Nigel Farage and the contested ghost of Margaret Thatcher.

Yet few expect the final result of Britain’s In/Out referendum to be as asymmetric as that roll-call would suggest. At the top of the pro-EU campaign Britain Stronger in Europe, there is no doubt: it could lose.

So what – and who – is responsible for the unlikely appeal of Brexit’s “odd squad”? And how do they work together when their side is so fractious and its big personalities seem so uninterested in teamwork?

The story begins on the morning of 20 February, when David Cameron summoned his cabinet to announce the results of his EU renegotiation and ask his ministers to support Britain’s continued membership of the Union. Those who did left by the front door; the six dissidents were asked to leave by the tradesman’s entrance.

Nipping out the back were the full cabinet members Iain Duncan Smith, Michael Gove, Chris Grayling, Theresa Villiers and John Whittingdale, plus the employment minister, Priti Patel, who has the right to attend cabinet meetings. They soon reconvened at Vote Leave’s headquarters, a nondescript tower block in Westminster, where they posed with a giant sign bearing the campaign’s slogan “Vote Leave, take control” – a sight more reminiscent of a group of local councillors vowing to protect a bus lane than the upper reaches of the British political class.

Then again, the cabinet Leavers are not, on the whole, an impressive bunch. Villiers and Grayling were among the casualties of the formation of the coalition government in 2010, moving from their briefs to make way for Lib Dems, and both had to be content with junior posts until the 2012 reshuffle. Since then, Villiers has been a competent if uninspiring operator in Northern Ireland. Grayling was widely held to be a failure at the Ministry of Justice and now serves as Leader of the House of Commons, historically the antechamber between full cabinet rank and the wilderness.

As for Whittingdale, he is that rare creature in Whitehall: a secretary of state for culture, media and sport who does not regard the post as a stepping stone to bigger things. As the recent white paper on the future of the BBC showed, the golden thread of his thinking is scepticism: towards the EU, the BBC and regulation of the press. He was Margaret Thatcher’s last political secretary in Downing Street and, after becoming an MP in the 1992 election, he set up meetings between the former prime minister and his fellow new boys from the 1992 intake – meetings that John Major blamed for fanning the flames of Eurosceptic rebellion in the dog days of his premiership.

Priti Patel also has impeccable Eurosceptic credentials. She cut her teeth as a press officer to the Referendum Party, set up in a doomed attempt to secure an In/Out referendum in 1997. Following William Hague’s election as Tory leader and the adoption of complete hostility towards the single currency, she joined the Conservative Party, becoming an MP in 2010.

She is best known for contributing to Britannia Unchained, a series of essays by Patel and four of her fellow 2010-ers (including Dominic Raab, widely expected to run for the Tory leadership next time). The book was intended to provide the intellectual ballast for a revivified Thatcherism, though the only part that attracted headlines was the claim that British workers were “among the worst idlers in the world”.

This dubious crew of ministerial heavyweights has grown marginally more likeable since Duncan Smith’s resignation as work and pensions secretary. Yet it is not his six-year tenure as a minister but his two-year stint as Tory leader that has left the biggest mark on the Brexit debate, with his former hires among the loudest advocates for a Leave vote – including the founding editor of ConservativeHome, Tim Montgomerie, now at Gove’s old newspaper the Times. (In the unhappiest periods of Cameron’s first term, when the Prime Minister was frequently criticised by Montgomerie in that newspaper, Cameroons would mutter about the irony that one of their sharpest critics had served as chief of staff to the least successful leader of the Conservative Party in its history.)

As for Michael Gove, though he is loved by lobby journalists, he remains a hate figure in the country at large and particularly among teachers, as a result of his belligerent tactics during his time as secretary of state for education.

***

The last of the senior Brexit-supporting Tories didn’t leave through the back door that morning because he hadn’t yet declared his position. That came the next day, in a media scrum outside his home in Islington, north London.

The former mayor of London Boris Johnson is still Britain’s most popular politician, surviving crises and scandals that would have left others dead in the water. He is also the only politician whom the Remain campaign truly fears. But Johnson is not a wholly congenial presence among Britain’s Brexiters. Although he is a far more adept planner than his dishevelled appearance – or his paper-thin record at City Hall – would suggest, he can be difficult to manage. His  weekly Telegraph column has largely been turned to cheerleading for Brexit but Vote Leave’s biggest gun doesn’t always point in the direction its chief strategists would like.

During Barack Obama’s visit to the UK in April, Johnson became embroiled in a war of words in which he suggested that the president had an ancestral dislike of Britain because of his “part-Kenyan” heritage. Having made this racially charged argument in the Sun, he extended the story needlessly by giving a similarly robust interview to the Daily Mail, much to the frustration of staffers at Vote Leave.

So there you have it. An unpopular firebrand, an unsuccessful former Tory leader, four relative nonentities and a blond bombshell who is considered clever but uncontrollable. It is less a huddle of Big Beasts than a grotesque menagerie – and these are among the sensible, mainstream voices on the Leave side. The other politicians who can get on to the Sunday shows to talk Brexit include Nigel Farage, who is adored by the four million people in Britain who voted Ukip in last year’s general election – and hated by the remaining 42 million. Yet he is a national treasure compared to George Galloway, formerly of Labour, who secured just 37,000 votes in the mayoral election. An unkind observer might say that none of the Brexit-backing politicians can stop traffic: half of them because they are unknown and the other half because most people would quite like to run them over.

There are also few compelling figures from business, sport, entertainment and science backing Brexit. Ian Botham is a rare celebrity Outer. “Cricket is a game where you achieve the greatest success when you are confident in your own ability to go out and stand proud,” he wrote in the Sunday Times. “Britain has that spirit.” In April, a slew of acts withdrew from a gig in Birmingham after finding out that it was organised by Leave.EU. Only Phats & Small, whose last hit was in 1999, refused to pull out.

Then there’s the infighting. To give just one example of the ongoing civil war, Vote Leave – the officially recognised campaign group for Brexit – believes Farage is so toxic to its cause that it regards his invitation to appear in a TV discussion alongside Cameron as an establishment stitch-up. “ITV has effectively joined the official In campaign,” said a Vote Leave statement to journalists on 11 May, written by Dominic Cummings, the campaign’s director. “There will be consequences for its future – the people in No 10 won’t be there for long.”

***

In the light of all this, why are the pro-Europeans so worried? Many feel that the current campaign is beginning to remind them of a nightmare year: 2011, when Britain voted decisively to reject electoral reform by moving from first-past-the-post to the Alternative Vote (AV). Around the time of the 2010 general election, polls had shown that Britain was in favour of the change by a 27-point margin. But on 5 May 2011, more than two-thirds of voters said No to AV, which ended up more than 35 points ahead.

What undid the Alternative Vote was a ruthlessly effective campaign against it – one that was almost completely fact-free. No2AV focused relentlessly on the cost of a new voting system; poster after poster made reference to its illusory price tag of £250m. “He needs bulletproof vests,” intoned one illustrated with a picture of a soldier, “NOT an alternative voting system.” Another came with a picture of a baby: “She needs a new cardiac facility, NOT an alternative voting system.”

As one veteran of the pro-AV campaign recalled recently: “It was impossible to fight. How do you repudiate it without repeating it? We never found a way.”

That appeal to economic interests was so powerful that Vote Leave has come up with a similarly memorable figure: the £350m weekly cost of Britain’s EU membership. This has been debunked by fact-checkers such as Full Fact, which estimates that the UK pays roughly £9.8bn a year once money back is taken into account. Regardless, Vote Leave keeps quoting the figure – and no wonder, because the chief executive of Vote Leave is also the architect of No2AV’s crushing victory: a 38-year-old LSE graduate called Matthew Elliott.

Despite Vote Leave’s anti-politics flavour, Elliott is a Westminster insider and well connected in the wonk world. He is the founder of the Taxpayers’ Alliance, the most high-profile of a close network of think tanks that are a proving ground for a rising generation of right-wingers. The Taxpayers’ Alliance, the Institute of Economic Affairs and the Adam Smith Institute together form what one alumnus jokingly calls a “Sorbonne for neoliberals”.

Much of Vote Leave’s staff is drawn from another Elliott creation: Business for Britain. The group was set up ostensibly to lobby for David Cameron to renegotiate Britain’s membership of the EU but was in reality designed as a Leave campaign in utero. Accordingly, many of its early recruits have ended up moving across.

Elliott is regarded as having a keen eye for talent and for being generous with his time. At each organisation where he has worked, he has taken care to bring on promising protégés. Alumni of the Elliott school include Susie Squire, who spent two years at the heart of Cameron’s administration as press secretary; Nick Pickles, head of UK public policy at Twitter; and Dylan Sharpe, the combative head of public relations at the Sun. Most of his favourite employees have three things in common: libertarian politics, a cut-throat instinct and loyalty to him personally. Those who have worked for Elliott largely speak highly of him.

The same cannot be said for the second leading player in Vote Leave who has the Remain side worried: Gove’s former henchman Dominic Cummings. David Laws – who, as a junior minister, worked closely with Cummings when he was at Gove’s Department for Education – describes him as a “grade-A political Rottweiler”. “As well as being bright,” Laws writes in his memoirs, “Dom Cummings was also blunt, rude, impatient and tactless.” According to friends of both, without Cummings’s encouragement, Gove would have been a mostly silent presence in the Leave campaign because of his close friendship with Cameron.

The former special adviser’s commitment to anti-Europeanism is a long-held one – his first job in politics was at Britain for Sterling, which lobbied against Britain joining the European single currency in the 1990s. Thereafter, he worked for Iain Duncan Smith during his brief and unhappy leadership. A former staffer from that time remembers him as an “abrasive presence”.

After Duncan Smith’s removal as Tory leader, Cummings retreated to his native Durham, where he helped to engineer victory for the No side in the referendum on whether to give the north-east its own devolved assembly. It was the tactics used in that referendum – an endless focus on costs, coupled with personal attacks on the credentials of the Yes side – which were taken on and extended by Elliott during the AV contest. Those tactics are once again on display in this referendum.

That partly explains why, on the Remain side, Cummings is respected and feared in equal measure. Yet his confrontational approach often proves his undoing: for instance, he understood the importance of giving a cross-party sheen to Vote Leave (not least to secure the official campaign designation), yet his conduct led to the departure of the Eurosceptic Labour MP Kate Hoey. “We live in a world where people get things by being nice to each other,” reflects a former colleague of Cummings, “and Dom doesn’t really work like that.”

Hoey’s walkout set the ball rolling on another, less dramatic exit: John Mills, Labour’s largest private individual donor and a Brexiter of many years’ standing. He feared the Vote Leave brand had become irrevocably Conservative. (Unlike Hoey, Mills remains on speaking terms with Vote Leave.)

Friends say that, for Elliott, who has been “planning this [campaign] for some time”, Cummings’s disposition is a price worth paying for his tactical nous. It was Cummings who was the architect of Vote Leave’s two-pronged strategy: claiming that the money we now pay to the EU could go towards the NHS, and suggesting that Brexit will allow us to cut immigration by “regaining control of our borders”.

The perceived cut-through of the latter message with older Labour voters was behind Vote Leave’s big tactical gamble. On 8 May, an official statement by the campaign declared that leaving the EU would also entail leaving the single market.

That decision is unlikely to find favour with big businesses that rely on international trade but it does allow Vote Leave to make strong and unambiguous claims about cutting immigration. If we are outside the European Union but inside the single market (as Norway is), we would have to accept free movement of labour. If we leave the single market, however, we could introduce a points-based entry system, or even finally achieve Cameron’s otherwise impossible cap on net migration.

Upset business but win over small-C conservative voters: it’s a big risk for the Brexiters to take. It represents a throw of the dice by Cummings, who sidelined Nigel Farage precisely in order to minimise the campaign’s focus on immigration. But with the vote scheduled to take place on 23 June and a repeat of last year’s refugee crisis in the Mediterranean looming, security and borders are likely to be at the forefront of voters’ minds. For all that those on the Brexit side have denounced Cameron for running a repeat of “Project Fear”, they know that they have to make change less terrifying than maintaining the status quo.

***

In their quest to take Britain out of the EU, the Brexiters have a simple, if high-stakes, strategy. They want to appear to be the underdogs (hence their repeated complaints about the government’s £9m pro-EU leaflet) and as a scrappier, grass-roots campaign taking on the might of the establishment. Naturally, this image doesn’t reflect an unvarnished truth: the press has been largely onside and senior editors and columnists are very willing to take Vote Leave’s calls.

There is also no concern about keeping the lights on. Arron Banks, the insurance magnate who bankrolled Ukip at the 2015 general election, might have refused to fund Vote Leave after it triumphed over his favoured vehicle, Leave.EU – he has called Matthew Elliott “Lord Elliott of Loserville” and threatened to sue the Electoral Commission for naming Vote Leave the official voice of Brexit – but insiders say that the campaign’s financial position is nothing to worry about.

If Vote Leave wins, it will have scored an extraordinary victory – and, it should be noted, defied the hopes of most of our allies in the rest of the world. The politicians backing Britain’s continued membership of the EU include not just Barack Obama but his likely successor, Hillary Clinton, as well as the prime ministers of Canada, New Zealand and Australia.

There is a vanishingly small number of international politicians who back Brexit. Like the inner core of Vote Leave, they are overwhelmingly drawn from the right-wing fringe – US Republicans such as Ted Cruz and Donald Trump and the French National Front leader, Marine Le Pen, who, unhappily for the Brexiters, is expected to visit Britain to support their case.

The only foreign leader who seriously supports a British Leave vote in June is a man praised by Nigel Farage and whose country Dominic Cummings spent several years working in: Vladimir Putin, who, as far as British voters are concerned, is even more toxic than Farage, Galloway or Gove.

When Britain’s odd squad looks abroad for allies, its options are few – but this ragtag collective is far from beaten. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics. 

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad