LONDON — Chancellor Philip Hammond on Tuesday made the case for a “soft Brexit” in a speech to City grandees, undermining Prime Minister Theresa May’s repeated calls for a “hard Brexit.”
The Prime Minister has prioritised gaining control of immigration as part of Britain’s negotiated exit of the EU. This would involve ending freedom of movement, which EU officials have said would force them to withdraw Britain’s membership of the single market.
This path has been dubbed a “hard Brexit,” as Britain would sever all links with the EU and then start from scratch. Trade would likely be severely disrupted.
At the annual Mansion House event in the City of London on Tuesday, Hammond effectively attacked this path, calling for “a deep and special future partnership with our EU neighbours” that would involve continued trade and immigration.
The Chancellor told assembled bankers and businessmen that Britain must remain “open to the talent, the ideas and the capital that have driven the success of our economy in the past, and will drive it in the future,” after Brexit.
Hammond said (emphasis ours):
“The future of our economy is inexorably linked to the kind of Brexit deal that we reach with the EU. And I am confident we can do a Brexit deal that puts jobs and prosperity first; that reassures employers that they will still be able to access the talent they need; that keeps our markets for goods and services and capital open; that achieves early agreement on transitional arrangement so that trade can carry on flowing smoothly and businesses up and down the country can move on with investment decisions that they want to make but that have been on hold since the Referendum.”
It is the second time in the last week that a newly emboldened Hammond has publicly pushed for a softer Brexit. The Chancellor told Andrew Marr on Sunday that no Brexit deal would be “very, very bad.” Theresa May had previously said that “no deal would be better than a bad deal” for Britain in Brexit negotiations.
Hammond was set to be axed as Chancellor by Theresa May after the election but her weakened position has meant he has stayed on.
‘We seek to manage migration, not shut it down’
Hammond on Tuesday also suggested that austerity could be slackened by the Conservatives in future, saying: “Britain is weary after seven years of hard slog repairing the damage of the great recession.”
But he warned that austerity could only truly be ended by higher growth, higher borrowing, or higher taxes.
Stronger economic growth is “the only sustainable way,” the Chancellor said, and to achieve this Britain would have to undertake “more trade, not less,” post-Brexit, including “maintaining strong trade links with European markets.”
The Chancellor said Britain must “push for a new phase of globalisation, to ensure that it delivers clear benefits for ordinary working people in developed economies.”
“We are not about to turn inward,” he said. “But we do want to ensure that the arrangements we have in place work for our economy… So, while we seek to manage migration, we do not seek to shut it down.”
Hammond stressed that Britain must secure a good trade deal for financial services post-Brexit, chiding EU counterparts for “protectionist agendas being advanced, disguised as arguments about regulatory competence, financial stability, and supervisory oversight.”
EU leaders, particularly in France, have been pushing for euro clearing to be relocated to an EU nation post-Brexit. This would strip the City of London of a €930 billion-a-day in trade.
The Chancellor used Tuesday’s Mansion House to announce a boost to investment, saying the government will not let businesses suffer from the withdrawal of the European Investment Bank post-Brexit. The EIB invested €6.9 billion in the UK last year and was the fifth largest recipient of loans.
To counter the possible loss of this funding, Hammond announced that the government will offer construction guarantees for the first time and raised the limit the British Business Bank can invest in venture capital funds from 33% to 50% to boost “innovation in our economy.”
Some of the £400 million of investment announced in last year’s Autumn Statement will also be brought forward, Hammond said without specifying what parts exactly.
The Chancellor said he is also in discussions with the European Investment Bank about its future relationship to Britain and said: “In the long-term, it may be mutually beneficial to maintain a relationship between the UK and the EIB after we leave the EU.”
The funding boost is “because investment is crucial for the economic future of this country, and we will not let Brexit uncertainty slow us down,” the Chancellor said.
Britain’s GDP grew by just 0.3% in the first quarter, undershooting expectations of 0.4% and suggesting that the Brexit-driven slowdown that many economists predicted last year could be arriving.
Hammond said: “I have said before, and I remain clear today, that when the British people voted last June, they did not vote to become poorer, or less secure. They did vote to leave the EU. And we will leave the EU.
“But it must be done in a way that works for Britain. In a way that prioritises British jobs, and underpins Britain’s prosperity. Anything less will be a failure to deliver on the instructions of the British people.”
Speaking at the same Mansion House event after Hammond, Bank of England Governor Mark Carney said that now is not the time to raise interest rates.