Chancellor Philip Hammond called yesterday for transitional arrangements to “smooth” Britain’s exit from the EU, the most senior cabinet figure to publicly suggest there might not be a clean break with Brussels in 2019.
Mr Hammond said there was an “emerging view” among “thoughtful politicians” that Britain might need more than the two-year period stipulated under the EU’s Article 50 divorce process to finesse its departure.
His comments aligned him with Mark Carney, Bank of England governor, who said last week it was “absolutely desirable” for financial services firms to be given time to adjust and “to restructure after the deal is agreed with the EU”.
But Mr Hammond’s comments caught Number 10 by surprise. A spokesman for Theresa May said “no decisions have been taken” but added that the prime minister had expressed a desire to avoid a Brexit “cliff edge”.
The issue of whether the UK should seek a transition deal has emerged as a central point of contention for hardline Brexiters, who have pushed for a clean break from the EU even at the risk of a “hard Brexit” that could destabilise trade relations with Europe.
Mr Hammond’s comments came a week after the Financial Times revealed that David Davis, the Brexit secretary, had told City of London officials he was not keen on a transition deal but might consider one to be “kind” to the EU.
Mr Hammond has emerged as the most prominent advocate of a more gradual withdrawal, frequently drawing the ire of some within his own party for his go-slow approach.
Mr Hammond told the Commons Treasury committee there was an “emerging view” in favour of a transition deal “among business, among regulators and among thoughtful politicians”. A House of Lords committee has also concluded that a transition deal will “almost certainly be necessary”, and today will urge the government to publish “specific proposals” before formal negotiations begin.
Mr Hammond said it was also “quite a universal view among civil servants on both sides of the English Channel” that a longer period of adjustment would be helpful, not least to tackle “risks to financial stability which must be a very real concern”. The pound continued its rise against the dollar after the remarks, finishing the London trading day up nearly 1 per cent to $1.269.
Mr Hammond declined to say whether the interim deal should last two years or longer, but the aim would be to bridge a potential gap between conclusion of the Article 50 process and ratification of a new EU-UK trade deal. “I would expect this would be one of the process issues we would want to discuss early in the negotiations,” he said.
The precise form of an interim deal could be controversial if the EU insisted on continued free movement rules until the final pact was in agreed.
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