Philip Hammond is winning the Brexit wars

Philip Hammond is winning the Brexit wars

Business leaders have been knocking on the Prime Minister’s door to demand clarity about Britain’s post-Brexit future.

Although Theresa May’s Brexit team technically has another 18 months to get a deal with the EU approved, the private sector can’t wait that long.

More than two-thirds of British companies say they need to know what happens after Britain leaves by June next year.

Continued uncertainty after that date means businesses can’t plan ahead, which could block investment and freeze hiring, they warn.

All the more reason for the government to devote its energy right now to agreeing a transition deal with the EU as soon as possible.

Yesterday Chancellor Philip Hammond repeated his call for a transitional arrangement that “looks a lot like the status quo”. He assured the Lords economics affairs committee the plan has May’s backing.

The PM supporting a transition deal makes sense. It’ll help her kill two birds with one stone: provide businesses the clarity they demand and set out a clear line for her ministers to follow.

The UK government needs to buy time

The two years Britain was given to negotiate its exit from the EU was always going to be a race against the clock.

Big trade deals take time to negotiate. Just ask Canada.

Late last year the Canadian government finally signed a trade deal with the EU after seven years of negotiations.

The two-year period is an arbitrarily set time frame because the exit clause was never meant to be exercised. It’s left both sides with precious little time to unwind decades of interwoven laws and policies.

The EU refusing to talk trade before agreeing in broad terms on issues like the divorce bill, Northern Ireland, and the rights of EU and UK citizens doesn’t help speed things along either.

Still, if Britain feels the pressure of the Brexit deadline, it’s got itself to blame too. It was a political decision to trigger the EU’s exit clause in March. May wanted to appease her supporters even though her government probably needed more time to prepare for the talks.

As a result, the government didn’t look ready when the negotiations started. Why else would May replace two ministers on the Brexit team days before the talks began?

This doesn’t mean the UK government can’t take back control in the negotiations. If time pressure is what’s putting the UK at a disadvantage, then all it has to do is buy itself more time.

An “off-the-shelf” transition deal, as advocated by Chancellor Philip Hammond, would do exactly that.

Why a transition period makes sense

Hammond claims a transition – or “implementation period” as May likes to call it – is now supported by his government.

This is significant. Many of his colleagues, especially David Davis and Trade Minister Liam Fox, have made strong claims Britain will be free to strike its own trade deals from March 2019.

If Britain and the EU agree to continue with current arrangements for a few more years, it’ll be impossible for Britain to ratify new trade deals.

According to Hammond, there’s now “general agreement that it would not make sense to ask business to face two sets of changes” (first in March 2019 and then again whenever Britain and the EU agree their final Brexit deal).

But a status quo transition phase wouldn’t just help the business community plan ahead; it would also help the British government a great deal.

First of all it would strengthen its negotiating position. With more time on the clock, Britain’s unlikely to agree a “panic deal” simply because time’s running out.

Despite the PM and Brexit Secretary David Davis previously stating Britain could walk away from the talks without a deal, in practice this just isn’t an option.

The economic and bureaucratic costs of tariffs and customs checks would be too high. Plus, the uncertainty it would bring could paralyse British business. It’s a nuclear option that the British government is increasingly moving away from.

Keeping things the same for a few more years would also defuse the divorce bill row.

Britain has outstanding obligations to the EU that go beyond the March 2019 deadline. To withdraw from those obligations, a settlement would have to be reached.

However, if Britain remains part of EU projects until a final Brexit deal is agreed, there’ll be no need to withdraw from current projects. Britain just wouldn’t sign up to new projects. This would reduce or eliminate the divorce bill.

Most importantly, with a transition phase companies would be reassured nothing major will change in the next few years, while it would give both parties more time to negotiate the right deal.

An opportunity for Theresa May

Next week Theresa May will give a speech in Europe in which she’s expected to lend her support to a transition deal.

It would mean quite a turnaround because she previously seemed fine with leaving the negotiations without a deal.

Brexit Secretary David Davis, too, has come around to Hammond’s view that a transition phase is imperative.

It would declare Philip Hammond the winner of the government’s “Brexit wars”. Over the summer ministers bickered over the kind of Brexit the government would pursue.

Months ago, Hammond was the first to warn of a “no deal” Brexit and stress the economic logic of a transitional arrangement.

May softening her Brexit stance could put her in a bind at next month’s Conservative Party Conference. Hard-line Brexiteers are likely to turn up the heat on their PM, fearing a transition period will become more permanent.

Rather than fear this, however, May should see this as an opportunity to reassert her authority. Ministers have stopped fighting each other in public, but the government still doesn’t look united.

Foreign Secretary Boris Johnson sounds more like a politician in campaign mode than a senior minister on a diplomatic mission.

And Trade Minister Liam Fox accusing the EU of blackmail over the divorce bill is just generally unhelpful now that May’s taking a softer tone.

May will only succeed in reasserting her authority over her ministers if she sets out a clear course herself. With this month’s speech and next month’s Conservative Party Conference she’ll have two opportunities to do so.

By backing Philip Hammond’s call for a quick, off-the-shelf transition deal, May will provide the clarity British business desperately wants and her ministers desperately need.