Hammond’s Brexit now like Labour’s but with continued austerity
The chancellor wants a “jobs & prosperity first” Brexit with a transition period with existing customs arrangements. And austerity would continue.
This morning the chancellor Philip Hammond delivered his Mansion House speech – postponed from last week following the Grenfell Tower tragedy. As expected, with the election outcome seen as a rejection of the prime minister’s ‘cliff edge’ hard Brexit, he said he wanted a transitional period “to avoid unnecessary disruption and dangerous cliff edges”.
He also advocated for a Brexit “that put jobs and prosperity first”. On migration, he distanced himself from the “tens of thousands” target saying the government would “manage migration” and that they “did not seek to shut it down”. In Labour’s election manifesto, they campaigned for a “jobs-first Brexit” as well as “managed migration”.
The chancellor said a transition period should mean that current customs border arrangements would remain in place for a period after Brexit. This would avoid the introduction of tariffs on goods between the UK and EU but would also mean the UK would have to wait longer to pursue its own trade deals. But effectively remaining in the customs union means it’s likely that it will continue to benefit from EU trade deals already in place as well as continued tariff-free trade with its biggest trading partner.
As we noted in a comparison of Labour’s Brexit and the Tories’ Brexit, Labour had not ruled out membership of the customs union (even beyond a transition period). The shadow Brexit secretary Keir Starmer had even said that customs union membership should stay “on the table”.
Maintaining existing customs arrangements would also be hugely beneficial given an earlier report that HMRC was no longer confident a new Customs Declaration Service (CDS) meant to make customs checks more efficient would be ready in time for Britain’s departure. In comments about the new system, the then treasury committee chair and Tory MP Andrew Tyrie said “the CDS is needed in order to handle a possible five-fold increase in declarations that could occur when the UK leaves the EU”. He warned that “much trade could be lost” if the project failed or was delayed.
As the Bank of England governor Mark Carney noted in his speech at the same event, the chancellor highlighted the importance of the services sector to the UK saying “our economy is 80% services” and that he wished to protect it. Hammond also made similar comments to Carney about how “liberalisation of services” would be be central to the UK’s economic success.
However agreeing a new free trade deal that included services will be much more challenging. Research from NIESR found that most free trade agreements “seem to be quite ineffective at reducing non-tariff barriers that are important for services trade”. And the advantage of the single market is that it is “a very deep and comprehensive trade agreement aimed at reducing non-tariff barriers”.
In his speech, Hammond also acknowledged the public were “weary” of austerity. However, he said that increasing investment in public services meant either “higher taxes, higher borrowing or stronger economic growth”. As the party of “low taxes” with a commitment to balance the budget by 2025, “stronger growth is the only sustainable way to deliver better public services, higher real wages and increased living standards”.
Of course, the problem is that even with a lengthy transition period with existing customs border arrangements, the country’s departure from the single market is likely to mean a significant hit to its finances. The chancellor may now accept the public are tired of austerity but he’s still expecting them to put up with it a while longer. With the economy already showing signs of weakening with just the prospect of Brexit, we may have to put up with austerity for a lot longer.