Iain Duncan Smith, Former Work and Pensions Secretary and Brexiteer HARDtalk

The question of what Britain's post-divorce relationship

with the EU will look like dwarfs all else

It will define Theresa May's premiership whether she likes

a Conservative die-hard Brexiteer who fell out with David Cameron

and is now watching Prime Minister May like a hawk.

Can she please the Brexiteers without destabilising

Iain Duncan Smith, welcome to HARDtalk.

I think it is fair to say that the reality of Brexit is sinking in, not

just in the UK but all around the world, and one of the most striking

aspects of the reaction we see is the sinking value of the British

pound. There is a lack of confidence from the rest of the world. Does

that give you concern? Not at all. I think you need to look on a wider

scale to balance really what the world is thinking. The value of the

pound as a lot of the Commons believe has been too high for some

time. One of the reasons British manufacturers have struggled so much

to sell into Europe, and you've seen our share of oversea trade with

Europe falling, it is because basically the pound has been very

high value, partly because we are getting our economy back in order,

but mostly the UK economy has been overrated and this flooring of the

pound will be and has been beneficial to manufacturing. No

doubt that's true, it has had that one beneficial effect... We see the

effect of it in the stock market. But the bottomline is that what we

also must appreciate is that the rest of the world looks at the UK

and is now valuing the UK and its assets at something like 20% less

than it was just a few short months ago and that says something

significant about the future view of where Britain is going. But does it?

I think if you laid too much on the idea of what happens to a currency

in the short term you lose sight of what is the long-term possibility.

Here I would just argue that with currency you are always in the world

-- in the realms of people who are seeing if they can sell it or by

Evan Bourne. So there's an element of this which is casino. -- or buy

it long. Of course they will lower the level of the pound until they

find out what kind of relationship we have with the EU. That was always

expected. But in that period, you can talk to economists like this,

they will say that in the short term that's good for the UK economy. Just

today, as we sit here, there's been a very interesting survey, out which

says that consumer confidence in the UK has not been higher for years and

actually when they were asked, where did you think the economy is going

and do you think this is positive, it is overwhelmingly positive. So

interesting to note that beyond the currency there's a lot of strong

signs that actually the British public is buying into the idea that

now maybe they are in a position to improve their lot, rather than be

worse, which is important because they buy things and our economy is

more about the UK than exports. One thing about the timing of the latest

round of as you call it gambling against the pound. It did happen

after Theresa May made a claim that she will trigger Article 50, that

is, given a two-year process of thrashing out a leading deal with

the EU, she will trigger it by March of next year. Now, there are many

people and indeed some at the very top of the British civil service who

think that was a terrible mistake, because it has handed over one of

the few cards that she had to play. Again, I don't really agree with

them. We are into a new realm of politics in a sense and I think the

civil service have got to catch up a little bit. The reality is that I

think what the European Union wants, and I agree with them, the system

help them out as much as to help us, we need to get on with this as soon

as was the land we need to make the break with the EU as quickly as

possible, this is what the Germans want, it is what the Commission

wants, so we should be working with them to achieve this. So what we

need to do is let them know that we are by a certain date going to be

officially engaging, we would of course engage previously about

elements to do with that, but that's important. The clock is now ticking.

We know the trigger will come by March of next year, so the clock is

ticking, and what is also plain... Commentators have made this obvious.

There is nobody really who believes that two years is going to be long

enough to thrash out the highly complex deal that will be the future

relationship between the UK and the EU. Therefore, we now face a cliff

edge. Two years from March 2017 we face that cliff edge and it is

likely there will be no thrashed out deal and Britain will have to face

nothing but the standard World Trade Organisation relationship with the

EU. That will be a disaster. First of all, on both counts, there are

two questions here, first of all I don't agree again with the FT's

commentary on this, pretty much totally. I think they've been wrong

almost every count, even though they may not admit this now. Far from

admitting it, the Financial Times it now says... They got their position

wrong over this and their forecast about what would happen to the

British economy is fundamentally wrong as well. Let's deal with this

in a sense of perspective. Look, rules around Article 50 are very

specific. It is that you have to years to get yourself sorted out.

There are two elements to Article 50. There is a big misunderstanding.

There are two parallel elements. The first is to leave there are lots of

functional bits and pieces you need to tidy up as you leave. What are

our commitments in financial aspects over a longer period of time, what

is our share of things, may be there are pension issues, do we want to

stay in things like the arrest warrant and things like that. Basic

structural stuff. That is the key to Article 50. The second bid is the

parallel position about what you want that relationship to look like

after you leave? In the future. That's the point I was making. The

first element needs to be complete within the first two years. The

second element is open to how simple you make this and how quickly you

can get it done. If you go out there with a very complicated ask that you

know will not be met, then you will not reach that endpoint. But if, as

they argued and I wrote a paper about this, if you keep the ask as

simple as possible to them, recognising what they can't possibly

give you, that is access... Not access, but membership of what we

call the single market... What you mean is that there will be no

preferential access at all? Not at all. What I am saying is there is a

big difference between membership of the single market and access to the

internal market. But the keyword you are using is preferential. Everyone

can have access to the single market. North Korea can have access.

The key issue is preferential access. You have an arrangement

which is about free trade and free access, for goods and services, it

is ultimately in the interest of the European Union as much as it is for

the UK. Also this idea... That's not true. Can I stop you? I didn't mean

to interrupted rudely, but you and many others who are, as I said, the

diehard Brexiteers always insist, look, it is as much in their

interest, the EU ID seven, as much as in owls to do a deal that works

for us both. -- as ours. That's patently not true. If you look at

the words of Angela Merkel... Why are you laughing? Because these two

people, Angela Merkel and Francois Hollande, are facing election. You

wouldn't expect them to say anything publicly other than seeing where

they -- a will stay where they are. If I was in a position I would do

the same! It is not about short-term politics, it is about long-term

politics! It is about the future of the European Union! If you are

Francois Hollande Ray Nagin have a very anti-EU party snapping at your

heels and you are in a terrible shambles at home, your domestic

ratings are shocking. Your worry right now is that actually that

party, in this case the national front in France, is going to make

major gains on the basis on how that you will say, well, we will be very

decent of the British. He won't say anything of the sort until they get

through the election. The real point is that. Right now at this level

what we should be doing and are doing is talking to lots of

different organisations in the European Union, business

organisations, organisations in financial services, to speak to them

and get the sense from them, and I've had discussions with people

from German business and so on, that once this is done and dusted what is

in interests of the EU is that we are able to access the British

market and vice-versa. That makes sense. To do so without any concept

of a massive tariff. That is your beginning. With respect, I think

many people in Germany and around Europe will see it as perhaps

arrogant and complacent for you to believe that people like Angela

Merkel, when she says, if we don't say that full access to the internal

market is connected to complete acceptance of the four Brexit is

principles, including free movement, where anyone can do what they want,

when you say to ignore that because Shias elections coming up, it is

nothing more than complacency. What she's talking about his of the

single market. In the bout it. She is also talking about preferential

access to the single market. She says if you walk away... I would say

the Angela Merkel clearly at this point, is the only reason that

people are members of the EU, there is little or no point in having a

European Union. If the only purpose is this issue around having control

of your borders or not having control of your borders, if that's

the only issue than what is the point of the European Union? She

knows there is a bigger point to the EU, which we don't want to be part

of, which is the whole political drive to a closer association in

Europe, maybe even call interstate. The point is she knows that. She

knows that the real reason. The UK reliance on exports into the EU is

three times the EU's reliance on exports into the UK. So when you

say, though, they need us just as much as we need them, it is just not

true. In the most basic terms. Why would EU spend the past 26 years

attempting to get free trade deals with countries that do even less

trade with them than we do? Why would they see to get something done

with places like South Korea, it is the only one of the major economies,

even Canada, and on, this is important, why would you waste your

time failing at that, by the way for the most part, where actual fact you

have one of your biggest trading partners that is not going to be

inside the European Union, but actually you have a really good

balance of trade with them right now. A country that complies with

every single level of regulation and agreement, that has been inside the

organisation for 40 years, which would take very little in a sense to

tidy up arrangements around it and you would have a very interesting

relationship with which could be done quickly? The answer to that is

common sense invariably prevails in these matters. You say we are small

apartment that they are to us, but hang on a second. If you are a

German car maker or a French farmer or a producer of agriculture... But

they won't be making the decisions. Angela Merkel and people like her,

27 of them have to be unanimous. Have a look at what's going on in

some of these countries. Have you ever seen so much arguing? You sound

supremely confident that you know what happening in the rest of

Europe, but some would doubt it but your confidence shines through. Let

me ask you a very simple... Are you a gambling man? I don't gamble. You

are gambling. You have boldly seen the Times newspaper, they have a

leaked report that the Treasury presented to Cabinet. The treasury

was Mac analysis... The one from April. Yes. They have stuck to it

and the Treasury's top officials, who you seem to think aren't worth

listening to, say that the likelihood is, as with disgust, that

if it comes to pass that two years from March 2017 Britain is there

with the trade relationship that is nothing more than the basic WTO

model, the treasury says it could cost Britain more than 60 billion

pounds a year. You tell me you are not a gambler? The same report that

the then Chancellor got them to do, that only looked at the downsides of

what could possibly happen. So you are prepared to gamble the

Treasury's entire policy? I will tell you who is gambling. The

Treasury when they produce a report which doesn't do an upside. Every

economic report does a downside and an upside. You have to acknowledge

the downside risk is there, that is the gamble. Let's have a look at the

upside, the upside of what happens when the UK increases its value of

trade around the world. The reason why the Treasury report on 12 April

was so discredited, because it was wholly political, it was produced to

support remain vote. That was their criticism at the time, it remains.

And for them, if this is the case, for them to suddenly does this back

off again and produced this as though it was tablets of stone

written by God Almighty to tell you exactly how the world will be in a

few years' time, I find it really quite visible. My point is this is

not a gamble, it is gambling when all you do is load the dice to try

and tell everybody how bad things will be. I am trying to the ground

he will listen to. You won't listen to Angela Merkel and Francois

Hollande, because you say they are politicians. You say that Treasury

are stuck in a timewarp, they haven't accepted June 23. So you

won't accept either. Will you accept those businesses which are voting

with their feet? Russian bank in London which says it is no longer

going to expand its London operations, it is going to move to

Europe because of what is happening in the UK right now, today. The boss

of one of the biggest cart companies in the world, who says that unless

he is guaranteed that he will get compensation if indeed we go to WTO

trade rules, he is not going to invest any more in the UK. Will you

listen to all of the business leaders who say that, in their

real-world experience, what is happening right now is going to hurt

their businesses? Of course I listen to what business leaders say. I

listen to all of them too, by the way. Just like JCB today walking out

of the CBI, is our biggest export manufacturer in Britain, saying they

don't agree at all with the CBI's position on this, they believe that

leaving the European Union will be a positive for us. There is a balance

of opinion out there. What tends to happen is you only get one side.

Business is as divided as anybody else. Of course we want to make sure

at the end of the day that research business has the opportunity to

prosper and thrive, because that is jobs and that is industry and money.

Well, I'm actually more thingy of the overseas businesses and business

leaders who need to decide whether to invest in the UK, and are clearly

saying right now we can't make that commitment. There is a big leap of

faith if you go from somebody saying I need to know where the position is

going to be before we can make big considerations about investment,

Tsang somehow all of these businesses and everybody -- every

thing else is just going to evaporate from the UK. There are a

lot of reasons why businesses are in the UK. In the city for example it

is hugely to do with the knowledge base that is here, the level of

contract law which is much simpler, there is huge ability to be able to

pull the interests and expertise that exists is, and of course the

language issue. In more than that, as one German financier told me the

other day, we like being in London, it is the only global city in Europe

and it is a much better place to be. So yes, of course, banks will move,

things will happen, they do all the time by the way. But the city of

London's real competitor is not Frankfurt or Paris, otherwise by now

they would have seriously big financial services businesses. It is

actually New York, and it is Singapore, and these other big

international centres. So the position for us is, how do you keep

costs under regulation is low on these businesses, and on these

centres, to allow business to actually invest? That is the key.

One of your most powerful messages during the whole Brexit campaign was

that he wanted to take back control for Britain, but in particular of

course for British Parliamentary sovereignty. It seems deeply ironic

that now here we sit having to make sense of Brexit on the one thing you

don't want to do is give Parliament a right to express its opinion on

what happens next. On the contrary, I do. I absolutely want to. So you

disagree? In the paper that we wrote for the Centre for Social Justice,

published about two weeks ago, we made it very clear that the best way

that you can get this done is by bringing forward a bill to repeal

the 1972 European Communities Act. Now, if you bring that forward,

everything in that bill is everything that is going to be in

Article 50. So that means that as that Bill progresses through its

committee stages, it can be amended, you can have the opportunity to

decide which could they support, they don't support, that will be

debated all the way over the next two years. Well, why can't MPs

debate the vote on the trigger of Article 50? They will be voting on

all of that. But why can't they specifically... There is a debate

tomorrow brought by the opposition, they have opposition votes if they

feel very clear about that. Is a guy who was on the same side of the

barricades as you, a barrister as well, Stephen Phillips, he thinks it

is absolutely outrageous that Theresa May and the government won't

give Parliament the right to give its assent to triggering Article 50.

Well, because it doesn't have to get the ascent from Parliament directly

on this, but Parliament is capable, you may not realise that. But the

British people only voted on the broad idea of Brexit, they didn't

have any idea what Brexit would look like, and we now have the beginnings

of a fleshing out of a government position. Surely the Parliament... I

say to Mr Phillips and the rest, the fact is the Parliament is quite

capable of having its say on the Article 50 negotiations, again and

again and again. I am talking about the triggering of it. The timing, as

we have discussed in this interview, is very important. Wednesday, there

is a debate, believe it or not, about the triggering of Article 50.

That is already in Parliament. And Parliament would express its will.

They can have another debate on Thursday. And next week, you guys

will get bored of it. Surely not! We also will not get bored with trying

to tease out what you mean by taking that control on matters of

immigration. You still haven't made it plain what immigration, when you

have taken back control, is going to look like. David Cameron used

figures, tens of thousands he said, net migration number. That was

obviously nonsense. What is going to happen. Stephen, let me just tell

you that. Again, in this paper just to make weeks ago, I am not in

government, by the way. You are very important voice on the Brexit side.

I and some colleagues published a paper saying this is how you leave.

One of the papers was called what you do about migration, how do you

control it in a way that allows you to get the best out of it not some

of the worst aspects. So I brought back a proposal which I hope and

believe the government may adopt which is to say that the way to do

it is not to have heart borders, but to have a permit and system that

what you do is you have work permits that are applied for, that at the

upper end, where you have scientists, academics, you know,

shortages of really skilled value-added Labour the software

engineers, things like that, you have a very light touch. They

basically would notice no difference, come and go as they

please, pretty much, people come and work here, adding value. At the

lower end, as you get down to the low skilled area, which has the most

genetic effect on incomes of the poor get the poorest in society,

there you have a much tougher and stronger system, getting British

businesses to accept that their first port of call for Labour and

for skills is in the UK. So this is where Amber Rudd's notions of

getting countries, companies who have to list all the foreign workers

comes in, is it? That proposal is not in our paper. You think that is

the way to go, is it? No, sorry. It is not... No, I'm sorry, it is not

in my paper. What I am suggesting is a simple process of work permits so

that if people want to bring some in from overseas to work, at this

point, Europe or elsewhere, they have to be able to demonstrate first

and foremost that they have attempted to actually find that

level of skill it here in the UK. I think that is reasonable. This by

the way can be done very quickly. When I was at the Department of Work

and Pensions we set up a new system. That will tell you all of the people

who are still available. It is quite important, this point. What I am

saying is you get the best of both worlds. You get control over

uncontrolled migration, which has damaged, I think, people 's living

standards at the bottom end of the income scale, at the same time you

also have the ability to make a very flexible where there is will add

value at the high skilled end. That is what we are after, not anti-

migration but making sure value-added migration can continue.

A final point, you have lots of other interest, social justice and

other things, is it not the case that because Brexit is such a

massive and complex issue is going to overshadow everything else that

Theresa May's government tries to do, including things that you really

care about? That is the truth. It is certainly the most enormous decision

that will have been taken, certainly in my lifetime. It will suck all of

the political oxygen out of the room. Well, if you don't watch it,

the answer to that is yes. But I think actually it is wholly feasible

to conduct good domestic government while at the same time concluding

this. And I am chairman of the Centre for Social Justice, now that

I have left the government, and our purpose now is not to talk about

Europe to talk about how do you improve the quality of life for the

bottom half of the income in society. Well, that will be for

another day and indeed it will be connected to what happens to Brexit

as well. But we have to ended there. Iain Duncan Smith, thank you. Thank

you. Thank you very much.