Hammond’s Treasury Cold-Shouldered as May Pursues Brexit Agendaby
Chancellor being sidelined in his push for free trade ties
BOE sees many negotiating objectives floated to be unrealistic
The U.K. Treasury is feeling under siege.
Once an unrivaled center of power within government, the department is now being sidelined in its push to maintain some access to the single market once the U.K. has left the European Union. This has resulted in Chancellor of the Exchequer Philip Hammond clashing with colleagues including Brexit Secretary David Davis, who favors a more radical break from the EU, and his exclusion from some meetings, according to Treasury officials who asked not to be named.
The sense that Hammond is fighting for status may add to concern in financial markets that Prime Minister Theresa May’s government is putting a reduction in immigration ahead of the potential economic benefits from Britain’s continued membership of the single market.
A weekend of newspaper revelations fanned speculation of a split. The Telegraph and the Times reported a growing rift between the Treasury and the rest of the government over migration controls, while the Mail on Sunday suggested that Hammond may be on the brink of resigning over the differences. The prime minister’s office expressed confidence in her chancellor on Monday.
“We need to stop perceiving people as Remainers and Leavers,” said Gerard Lyons, a pro-Brexit economist who advised Boris Johnson when he was London mayor and is now chief economic adviser at Policy Exchange. “The cabinet has to start looking at what’s the best for the U.K.”
The finance ministry has found sympathy at the Bank of England, where the lack of common ground over Brexit among ministers has caused concern with some monetary policy makers considering the strategy now being outlined as unrealistic. Governor Mark Carney himself has publicly skirmished with May, saying officials won’t “take instruction” from politicians after her recent comments highlighting the costs of ultra-loose monetary policy.
May, who has promised to trigger formal Brexit negotiations by the end of March, is unlikely to be guided by Hammond, who is acting more as a mitigator between some of the government’s more hardline ideas and a business community increasingly alarmed by the prospect of a “hard Brexit,” the officials said.
While Hammond, who campaigned to stay in the EU, has given up hope the U.K. will remain a member of the single market, he still favors a softer Brexit than many of his cabinet colleagues on issues such as immigration, as he wants to prioritize agreements mirroring single-market access for the finance industry, the officials said. He is keen to keep Britain open to skilled workers, particularly in the financial sector, and wants a longer period of transition to allow the City of London to adapt to the new relationship with the EU.
The need for a measured change was echoed by Bank of England Deputy Governor Jon Cunliffe, who told lawmakers on Oct. 12 that Brexit needs to happen in a “smooth and ordered way.”
Concern among bank chiefs is mounting. Much of Hammond’s trip to the U.S. this month was spent softening the perception that a hard Brexit is inevitable. Meetings with executives from banks including Morgan Stanley and Goldman Sachs Group Inc. in New York focused on allaying concerns Britain may abandon many of the EU agreements that lenders see as essential to maintaining London’s dominance as a financial center.
Unfortunately for the City, Hammond does not have the influence on May that his predecessor George Osborne had over David Cameron. May has kept the chancellor in the dark about much of her strategy, and does not share his desire to prioritize the needs of the City.
Hammond is also at odds with Davis and Trade Secretary Liam Fox over their push for Britain to leave the customs union, expressing concerns about the potential costs.
Britain has two years to clinch a Brexit deal once Article 50 of the Lisbon Treaty, the formal process for leaving the EU, is triggered. If it fails, companies would be subject to trade tariffs under standard World Trade Organization rules. When the Times newspaper reported what it said were leaked government papers suggesting Britain could lose 66 billion pounds ($80 billion) a year under such a scenario, there was criticism the Treasury was still biased against Brexit.
The prime minister has “full confidence” in Hammond and his work, spokeswoman Helen Bower told reporters on Monday.
She has evaded talk of a rift with Carney, who has yet to announce whether he’ll stay on as governor for a full eight years.
“The prime minister is clear in her support of the governor and the leadership he’s shown in last few months,” Bower said.