Chancellor Philip Hammond has backed a transitional period to ease Britain’s exit from the European Union, bringing relief in the Square Mile but exposing a potential split with senior Cabinet colleagues.
Hammond said yesterday that “thoughtful politicians” could see the need for a “longer period to manage the adjustment” of leaving the EU.
Hammond, however, told the Treasury Select Committee yesterday that a deal would “smooth” the process and avoid risks to financial stability.
A transitional arrangement “would be generally helpful, would tend towards a smoother transition and would run less risk of disruption and including less risk to financial stability, which must be a very real concern,” said Hammond.
The chancellor also noted financial services firms had been clear in their desire for a transitional deal, but said that an arrangement would apply to the broader economy, not just the City.
A spokesman for the Department for Exiting the EU said last week’s report of Davis’s comments “does not properly reflect government policy or the secretary of state’s view. He [Davis] has made clear that the UK wants a smooth and orderly exit from the EU, a new partnership that works in the interests of both parties, and is looking at all options to deliver that.”
Industry groups welcomed the possibility of a transitional arrangement.
Miles Celic, chief executive at lobby group TheCityUK, said: “An orderly exit and certainty are in the economic interests of not only the UK, but the EU 27 and the global community.
“The UK and the EU should publicly commit to putting in place satisfactory cross-sectoral interim arrangements at the start of the Article 50 negotiations. These should be confirmed in detail as soon as possible after that,” he added.
"It is critically important for both sides of the debate to make sure that industry can reconstruct against a known outcome,” said Anthony Belchambers, a member of the FSNF executive committee.
“It would be appalling if the politicians on both sides of the debate failed to understand the imperative that is hanging over the industry.”
Simon Lewis, chief executive of the Association for Financial Markets in Europe (AFME) said: “This is encouraging as AFME has consistently argued that an appropriate implementation period will be essential, given the operational challenges and financial stability risks to Europe's capital markets of a hard Brexit.”
However, a spokesman for Leave Means Leave, a pressure group, disagreed. “Businesses want certainty as soon as possible. Britain must leave the EU within a maximum period of two years after triggering Article 50,” he said.
Detail on the precise character of Hammond’s possible transitional arrangement was not immediately clear.
“A transitional deal would include interim measures, and could actually mean many things,” said Shanker Singham, director of economic policy at the Legatum Institute, a think tank.
“Businesses need to make their own evaluation,” he added.