It’s been an interesting week so far for the chancellor.
On Monday, speaking to Le Monde, Philip Hammond said that the UK won’t be a tax haven after Brexit, and would retain a recognisably European economic and social model. He was quoted as saying that the government had no intention to reduce the tax to GDP ratio after 2019.
On Tuesday, William Hague weighed in on the Brexit debate in support of the chancellor, arguing that he had hit on the best way to avoid chaos in delivering Brexit.
Hague cited a number of reasons why he supported Hammond’s view that we should stay in the Single Market and Customs Union during a transition and implementation phase lasting until 2022.
First, he said the EU negotiations would be made simpler because there would be no need to negotiate a special transitional regime.
Second, it would defuse the row over EU budget payments, because these would continue in 2020 and 2021.
Third, we would have more time to put in place a new customs system.
Fourth, the volume of new laws required in the immediate future would be reduced.
Fifth, business would be under less pressure to make “cliff edge” decisions on jobs and investment.
And sixth, it would make it easier to get the terms of Britain’s departure through Parliament.
The intriguing question is what this all means – and there are very different potential interpretations.
The “bleeding obvious” school of thought argues that the chancellor couldn’t say anything else on taxation, because when he’s trying to hold the austerity line against demands for higher public spending, the last thing he wants to talk about is a lower tax to GDP ratio.
This viewpoint argues that similar pragmatic thoughts lie behind the idea that we should remain in the Customs Union and Single Market until 2022.
But there is also another interpretation: that this week’s events are actually all about marking the dividing lines about the entire post-Brexit economic model. This starts with the view that the chancellor has undermined our future negotiating strength by ruling out the idea we could forge a new competitive model post-Brexit.
There has to be a suspicion that behind any transition and implementation phase, entailing continued Single Market and Customs Union membership, lies a desire by some to make such an arrangement more permanent in some form.
And herein lies the problem. To maximise the economic benefits of Brexit, we need to maximise domestic and international competition. Domestically, this means reducing the size of the state – less tax, less spending, less regulation.
Globally this means a shift to unilateral free trade, removing tariff and non-tariff barriers. It also means negotiating free trade agreements with a particular emphasis on services – which make up the overwhelming majority of our economy.
This requires us to have skin in the game, and put domestic regulation on the table in negotiations. We cannot do this while remaining inside the Single Market. As for Customs Union membership, this obviously prevents us negotiating free trade agreements on goods with the rest of the world.
Any transitional deal that results in us still being in the Single Market and Customs Union in 2022, six years on from the referendum, would make a mockery of Brexit means Brexit. A one year transitional arrangement beyond 2019 might have merit, but no more.
The problem with Hague and Hammond’s pragmatism is that it blurs the message that this government should be championing: the best Brexit is outside the Single Market and Customs Union.