For a whole week, the Chancellor of the Exchequer has been out and about on the airwaves of the United Kingdom, attempting to talk up the prospect of a long transitional period for the UK-EU relationship after the UK’s membership of the EU lapses in March 2019. By arguing that there must be no cliff edges for business to fall from, he is stating that he wants the UK to retain access to both the single market and customs union for as long as possible.
This is the prevailing view among mandarins in the Foreign Office as well as the Treasury, who are determined that, while Brexit might technically mean Brexit, nothing much changes after April 2019. The EU has over 800 separate bilateral agreement with other nations, all of which the UK will seek to replicate between now and March 2019. So the civil servants have a lot on their plate. As civil servants are wont to do, they will be asking for more time to get the job done.
‘Need more time’ has been the story of UK Financial Investments, the vehicle established by the Treasury after the great banking crash to manage the government’s investments for the past eight and half years. It’s a testament to what can happen under nationalisation: different strategies pursued by different CEOs, each favoured by different Chancellors. RBS was helped off one massive cliff edge in 2008, only now to find itself on a very long slippery slope.
Since the election, the Prime Minister herself has been on a slippery slope of her own. Her apparent inability to emote with the families of the victims of the tragic fire at Grenfell Tower in Kensington, which took 79 lives, only compounded public concern that she does not have enough of the soft skills a Prime Minister needs in these times. Friends of Theresa May have indicated that she recognises her shortcomings but she will stay for as long as she can to take the bullets for the candidate who will succeed her. Any deal on Brexit will be controversial – and she may not survive to the end of the negotiations – but she may as well sacrifice herself at a really sticky moment in the negotiations rather than merely after a weak showing in a general election.
Government ministers feel liberated by the resignation of the Prime Minister’s joint Chiefs of Staff. She also lost both the Head and Deputy Head of her Policy Unit this week. Many ministers are having to learn to think for themselves again, after a year in which Number Ten had an iron grip on every aspect of policy. For businesses who need to talk to government, this is good news: the department responsible for a given policy area really can now reform policy without having to second guess the Prime Minister.
Yet the Treasury still holds the purse strings, and this makes Mr Hammond the most powerful man in the government. This week, he toughened the government’s position on the public finances, after some in the Prime Minister’s camp suggested that there needed to be an end to austerity. The Chancellor argued that taxes and borrowing should not rise. It’s a fair point, given the government is in debt to the tune of £1.6 trillion (and rising), borrowing £1.5 billion each week. Not forgetting that interest rates may rise in the second half of the year, the economy may well have passed the top of the economic cycle and be in recession by 2018 and the UK could be cut off from the single market in 2019. Tough times lie ahead for the UK.
