Brexit Turns U.K.’s Finance Chief Into the Quiet Man Next Door

  • Hammond gets overshadowed by ministers preparing for EU talks
  • Treasury no longer calling the shots, says former adviser

What Type of Brexit Deal Should May Seek?

To show the traditional importance of the chancellor of the exchequer in British government, the keeper of the nation’s finances lives next door to the prime minister. 

Such proximity underscores how chancellors of all political persuasions typically sit second in the pecking order of power. Lord Salisbury bemoaned when he led the country more than a century ago that the Treasury “claims a voice in all decisions.” 

Philip Hammond

Photographer: Luke MacGregor/Bloomberg

The problem for Philip Hammond, who took the job in July, is that Britain’s vote to leave the European Union may be quietening that voice coming from No. 11 Downing Street. While he remains a trusted adviser to Prime Minister Theresa May, other cabinet members are assuming greater influence over just when and how the U.K. goes it alone. They are prioritizing curbs on migration over unfettered access to the trade bloc and protecting the financial industry.

“We have seen the end of the close relationship between No. 10 and No. 11,” said Simon Wren-Lewis, a professor of economics at Oxford University who has advised past chancellors. The Treasury “will no longer be the department calling the shots on Brexit,” he said.

Strategy Change

In a BBC Radio interview ahead of his speech to the Conservative Party conference in Birmingham. central England, on Monday, Hammond, 60, said there’s no doubt he will be playing a key role in the Brexit negotiations. “I can promise you the Treasury will be right at the heart of that discussion as we’re going forward,” he said.

Yet there’s already evidence of a shift in strategy when it comes to the EU.

On the eve of becoming chancellor, the then foreign secretary told a summertime gathering of bankers that “access to the single market is crucially important to your industry” and “we want to work collectively with you” to ensure it’s maintained. Since then, officials say Hammond has concluded that upholding free trade is an increasingly unrealistic prospect under EU rules if the government focuses on restricting immigration as May and Brexit Secretary David Davis have signaled.

Banking Voice

Bankers have long relied on the Treasury to speak up for them in the corridors of power and now represent the industry with the most to lose from Brexit. Hammond is pushing to win what he calls the “best deal” for manufacturers and financiers, but it may not be enough to allow banks in London to keep selling services throughout the continent.

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Credit Suisse Group AG are among the banks to warn they may shift jobs out of Britain if the status quo is jeopardized.

“The Treasury is not going to be able to dictate policy,” said Tim Bale, a professor of politics at Queen Mary University in London and author of a history on the Conservative party. “The difference now is that it’s got a mitigating rather than a driving role.”

Osborne Upended

Historian Anthony Sampson called the Treasury the “central citadel” of British government. Gordon Brown used it as his personal fiefdom for a decade before taking over from Tony Blair as prime minister in 2007. His successor, Alistair Darling, orchestrated the 500 billion-pound ($650 billion) bailout of Britain’s banks during the financial crisis.

Power began flowing away from the Treasury on the night of July 13 when May axed George Osborne as chancellor, having previously bemoaned a failure to boost the economy’s productivity. A friend of David Cameron, whom May replaced as leader, Osborne was de facto deputy prime minister with the heft to shape policy on not just the budget and economy, but on who runs schools and even health issues.

Once the bookmakers’ favorite to succeed Cameron, the shock result of the Brexit referendum upended Osborne’s career.

The pro-Brexit camp had attacked him for warning a vote to leave the EU would trigger a “DIY recession” and for threatening an emergency budget to cut spending and raise taxes should Brexit prevail. Osborne also deployed the Treasury to back his case with a 200-page report that projected job losses and a weakening economy. Former Chancellor Nigel Lawson complained the department was “prostituting itself” and subsequent data suggests the economy has proved resilient.

“The problem is, George Osborne so overplayed his hand that the Treasury lost credibility,” said Peter Hahn, a professor at London’s Institute of Financial Services and a former Citigroup Inc. executive.

Lower Visibility

Hammond is now keen to tone down the Treasury’s prominence, say officials.

He has already reduced the number of advisers and plans fewer trips around the country than Osborne, who often conducted television interviews on building sites or factory floors replete with high-visibility jacket and hard hat. As he prepares to announce changes to the budget on Nov. 23 in his first big set-piece event as finance minister, officials say Hammond will shun the broad policy sweep of Osborne and deliver a shorter plan more focused on the details.

The need to cushion the economy means that plan will include easier fiscal policy than Osborne. “The fiscal policies that George Osborne set out were the right ones for that time,” Hammond told his party on Monday. “But when times change, we must change with them,” he said in his conference speech.

“The markets have calmed since the referendum vote and many of the recent data have been better than expected,” Hammond said. “But there is no room for complacency. Many businesses which trade with the EU are uncertain about what lies ahead.”

Hammond is not without influence. His department has more resources than Davis’s, which is being built from scratch. Still, bank lobbyists are advising their bosses to also connect with officials from Davis’s team, according to two who declined to be identified when discussing private matters.

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“The Treasury is not fully in the loop,” said Mujtaba Rahman, an analyst at the Eurasia Group, a political consultancy. “Hammond is looking like a subordinate chancellor.”

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