Theresa May’s new Government has indicated it is prepared to spend in order to stabilise the economy, as it set out a blueprint for post-Brexit Britain.
In a major shift away from the era of austerity imposed by George Osborne, the former chancellor, his successor Philip Hammond suggested that his Treasury will borrow in order to invest in British infrastructure.
Mr Hammond said Mrs May’s Government would “borrow and invest wisely” after the “shock” to the economy caused by the Brexit vote. His comments were welcomed by business groups, which urged the Chancellor to press ahead with investments.
The Prime Minister’s new team began to plan for Britain’s departure from the EU. David Davis, the new Secretary of State for Exiting the European Union, suggested Britain would demand full control of its borders but would want to retain access to the single market.
Mr Davis believes Britain could start to feel the “economic benefit” of Brexit before the end of 2018.
Mr Hammond said yesterday Britain would come out the single market as part of its decision to leave the EU, but would negotiate access to the bloc.
“We will come out of the single market as a result of our decision to leave the European Union,” Theresa May’s new Chancellor said on radio.
“The question is how we negotiate with the European Union, not from the point of view of being members of it but from the point of view of being close neighbours and trade partners of it.”
He added: “I would like to see us negotiating access to the single market for Britain’s businesses, so we can go on selling our goods and services into the European Union market and indeed enjoying the benefits of consuming European Union goods and services here as we do now.”
The blueprint for how to leave the EU was set out by Mr Davis in an article published earlier this week before his appointment to the Cabinet, but is expected to form the basis of his plans in the coming weeks.
Mr Hammond’s comments appeared to signal a significant change in the Government’s economic policy in the coming months.
Speaking on ITV News, the new Chancellor said: “Borrowing when the cost of money is cheap has some great attractions, but this country is already highly indebted and we need to be very careful about the signal we send to markets about our intentions. So it’s about getting the balance right and making sure that we borrow and invest wisely where we can make big impacts on Britain’s productivity.”
Mr Hammond also spoke about “new parameters” to replace the strict timetable for reducing borrowing that was the main focus of Mr Osborne’s time in the Treasury.
He said: “What we did in 2010 was exactly the right approach for the challenges that faced the British economy then. Now we are entering a new phase in the story of the British economy with the decision to leave the European Union. Our economy will change as we go forward to the future and will require a different set of parameters.”
In a boost to middle earners, Mr Hammond made clear that he hopes to avoid tax rises.
Adam Marshall, acting director general of the British Chambers of Commerce, said: “We’ve been calling for a long time for an infrastructure investment boost and for the use of the government’s fiscal credibility to make that investment boost while the cost of borrowing is low.
Mr Davis’s “Brexit blueprint” states that trade talks with other countries should begin immediately and that Article 50 – which will trigger Britain’s formal break from the EU – should be invoked by the end of the year, despite Mrs May previously saying that the process should not begin until 2017.
The Government would have first to consult with administrations in Scotland, Wales and Northern Ireland and other business groups and unions.
Mr Davis set out his wish for the UK’s EU relationship to be based on the current draft deal between the EU and Canada.
This would give the UK access to the single market without having to accept uncontrolled numbers of immigrants.
Mr Davis said he had ruled out other models for Britain’s future relationship with the EU, notably the Swiss agreement because that also allowed free movement of people.
He said that Britain should seek new free-trade agreements with “the biggest prospective markets as fast as possible”, focusing initially on China, the US, Canada and Hong Kong.
Deals with other countries such as Australia, Brazil, India, South Korea, Japan, Mexico and South Africa would follow.
He also said the UK should “accelerate” the agreement of the controversial Trans-Atlantic Trade and Investment Partnership deal with the US.
He added: “There is no reason why many of those cannot be achieved within two years.”
Mr Davis suggested that Britain should start to wean itself off grants from Brussels well before the UK finally severs its links to the EU.
Sam Alderson, an economist at the Centre for Economics and Business Research said yesterday that the Government’s decision to abandon a target of balancing the books by 2020 was the right decision.
“The correct tax cuts, such as a drop in corporation tax, and commitments to infrastructure spending over the coming years will provide a much more considerable boost to the attractiveness of the UK economy than striving to balance the books as soon as possible,” he said.
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