Hammond Seeks to Ready Economy as U.K. Faces Brexit Uncertainty

  • Admits business uncertainty will be a challenge for government
  • Autumn Statement will seek to boost productivity, investment

Philip Hammond.

Photographer: Christopher Furlong/Getty Images

U.K. Chancellor of the Exchequer Philip Hammond is preparing British businesses for two years of uncertainty, saying his budget report this week will seek to ready the economy for life outside the European Union.

"Business likes certainty and that’s one of the challenges we face over the next couple of years," Hammond told ITV’s “Peston on Sunday” program. "The important thing is that at the end of this period of negotiation, we end up with a framework which allows us to support the economy" no matter what agreement is reached, he said.

Hammond will deliver his first fiscal report, the Autumn Statement, to Parliament on Wednesday. He faces the prospect of lower economic forecasts and a potential hit from Brexit, which organizations such as PwC say could cost the U.K. as much as 100 billion pounds ($123 billion). He has pledged to set out a new framework, after dropping a goal of his predecessor George Osborne to balance the books by 2019-2020.

The chancellor, in a separate interview on the BBC’s "Andrew Marr Show,” stressed that Britain’s spending power remains constrained by an “eye-wateringly” large debt and a substantial deficit. Forecasts for a slump in economic growth pose a “sharp challenge” for public finances, he said.

Slowing Growth

A report from Ernst & Young LLP released Sunday said slower growth will trim tax revenue, forcing government to borrow in excess of the March forecast from the Office for Budget Responsibility. The office will likely downgrade its 2017 growth forecast to 1.25 percent to 1.5 percent from 2.2 percent and the deficit for the current fiscal year will swell by 7.5 billion pounds, according to the report.

The economy “does need to maintain credibility with markets,” he said. "I want to make sure that the economy is watertight, that we have enough headroom to deal with any unexpected challenges over the next couple of years and most importantly, that we’re ready to seize the opportunities of leaving the European Union."

Wednesday’s statement will set out his aim to boost productivity through targeted investments. The Treasury has already announced 1.3 billion pounds would be spent on improving Britain’s road network.

He will also set out measures to help those families struggling to make ends meet. The Treasury will seek to raise tax revenue by tightening rules for “salary sacrifice,” the Sunday Telegraph reported.

‘Coming Together’

The chancellor also rejected suggestions the government is struggling to find common ground on a Brexit strategy, saying he was "surprised by the degree to which the cabinet is coming together around a view of the opportunities and the challenges ahead." Still, he reiterated that the government would not reveal its negotiating position ahead of talks.

"There is a change around this debate going on in Europe itself about migration and free-movement," he said on ITV. "So we should go into this negotiation with all the cards in our hands without marking out red lines in advance."

He said he remained confident the U.K. would get access to EU markets after leaving the bloc, and said the government would fight for "maximum access" for financial services.

A group 60 Conservative Party lawmakers, including seven ex-cabinet ministers, are urging May to cut access to customs and single market, according to the Sunday Telegraph.

U.K. businesses separately are asking the government to clarify what happens on the day Britain leaves the EU, because many companies “are inevitably considering the cliff-edge scenario -- a sudden and overnight transformation in trading conditions,” Paul Drechsler, president of the Confederation of British Industry, said in the text of a speech prepared for the group’s annual conference Monday.

The CBI said a sudden change could leave businesses in a “regulatory no man’s land.”