U.K. Drops Brexit Bravado as Hammond Appeals to Business

  • Chancellor of Exchequer speaks Monday to U.K. business leaders
  • FT reports City of London delegation is headed to Brussels

Embark CIO Toogood Sees Attempt to Cherry Pick Brexit

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Theresa May’s government has changed its tune on Brexit, striking a more sober and realistic tone weeks after her disastrous election. Gone is the bluster that had prompted European Union allies to chide the U.K. for wanting to have its cake and eat it, too.

On Monday, Chancellor of the Exchequer Philip Hammond used a speech organized by the Confederation of British Industry to tell business leaders they must help the government make the case to Europe for a smooth Brexit, with a "shared solution." Their concerns, he said, would be heard -- a conciliatory gesture to an audience that’s been overlooked, and at times, even dismissed.

"For us, Brexit is the dominant focus; for many of our continental partners, it is just one among many challenges vying for attention," Hammond said, according to remarks published by the Treasury. Business must "go on emphasizing to contacts and supply-chain partners in Europe that this is a shared challenge, that has to have a shared solution," he added.

The change in tone has become apparent since May lost her majority and had to cobble together a working arrangement with a Northern Irish party. Unable to impose her vision of Brexit and under mounting pressure to drop austerity, the prime minister has been forced into making political concessions at home and increasingly likely with her EU divorce partners as well.

Hammond has emerged as the main cheerleader for a business-friendly Brexit. His reputation for being one of the cabinet ministers in favor of a softer Brexit had made him a candidate for the chopping block when it looked as if May was heading for a landslide with an army of hard-Brexit supporters.

But May’s poor election performance has raised his stature, and he’s been unafraid to spar with Brexit Secretary David Davis, the chief negotiator, or take jabs at Foreign Secretary Boris Johnson, one of the faces of the successful “Leave” campaign. In Berlin last week, Hammond joked that he now tried to “discourage talk of ‘cake’ amongst my colleagues.”

Bad Outcome

Since the election, the chancellor also has argued that leaving the Brexit talks without a deal, as some including May have threatened, would be a “bad outcome” and that immigration should be managed rather than “shut down.” He’s also warned that any fragmentation of financial services after Brexit could result in highest costs for companies both in Britain and Europe.

By telling business chiefs they need to be more vocal, Hammond is setting job creation and the economy as the key priorities for Brexit negotiations, stressing anew the need for a smooth transition. He is also appealing for businesses not to defer investment.

"We need you to play your role and to make your voice heard," he said. "We need you to invest in your companies and seek out new opportunities for business around the world.
And we need you to make your voice heard, if you believe in competitive tax rates, market economics, free trade, and sound money."

There are signs that others are working to get May to rethink her approach to the breakup. A report in the Guardian, citing government officials, said ministers were being told to either accept political compromises or to settle for a limited free-trade deal similar to one the EU and Canada signed -- reasoning that it’s not possible to have the best of both worlds.

In the new climate, a City of London delegation is headed to Brussels this week with the unofficial support of senior government figures, the Financial Times reported, citing three unidentified officials familiar with the project. The aim is to present a secret blueprint for a free-trade deal on financial services when Brexit is completed in March 2019.

Businesses need a way to provide an “enduring constant connection that will last far longer than Brexit,” said Steve Varley, chairman and managing director for the U.K. and Ireland at the professional services firm EY. “We need to do something of more industrial strength.”

Bone of Contention

With negotiations formally begun, a bone of contention will be Britain’s divorce bill, which has been reported to be about 100 billion euros ($114 billion). The Sunday Telegraph said that May was prepared to stage a dramatic walkout to show voters back in the U.K. that she’ll play hardball.

This is the same prime minister who boasted back in May that European Commission President Jean-Claude Juncker was going to find out what a “bloody difficult woman” she could be. Yet her political standing at home back then was much stronger. By the end of the campaign, she was accused by critics of being “weak and wobbly” instead of the “strong and stable” leader promised in her election slogans.

In the meantime, May’s government on Monday will notify five historic European allies that the U.K. will pull out of the 1964 London convention that allowed their fishing vessels to access waters as close as six to 12 nautical miles from British shores. 

In terminating rights that predate even the U.K.’s own entry into the EU, May is appeasing a long-suffering industry that favored Brexit by wanting the country to reclaim control of its waters. She’s also attempting to demonstrate that even weakened, she can pack a punch.

— With assistance by David Hellier

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