Downing Street begins to reveal Brexit negotiating stance

yesterday by: Henry Mance, Political Correspondent, and George Parker, Political Editor

The British government has begun to reveal its increasingly pragmatic negotiating stance with Brussels ahead of Theresa May’s long-anticipated speech on Tuesday in which she sets out her Brexit blueprint.

In the strongest indication yet of the direction Brexit talks will take, chancellor Philip Hammond warned on Sunday that Britain would become a low-tax competitor if it was not granted good access to the EU’s common market. But he also rejected calls for a Singapore-style economic model, saying that he hoped the UK would “remain in the mainstream of European economic and social thinking” after leaving the EU.

Asked by Die Welt, the German newspaper, whether Britain could become “the tax haven of Europe”, Mr Hammond said: “The British people are not going to lie down and say, ‘too bad, we’ve been wounded’.” With 12 weeks until her self-imposed deadline for triggering Article 50, the EU’s exit clause, Mrs May is keen to calm fears in European capitals that Britain will take a hostile approach to talks. The prime minister’s speech at Lancaster House in London, which will be attended by EU ambassadors, will seek a conciliatory tone. Markets are expected to send sterling down against the dollar and the euro, should the prime minister confirm that Britain will leave the single market and indicate it will quit the customs union. The pound fell sharply after two of her previous major interventions: a speech to the Conservative party conference in October, and her first television interview of 2017. Simon Derrick, head of BNY Mellon’s markets strategy team, said: “It seems likely that sterling could come under pressure from the start of the week.” He noted that at least one report suggested Downing Street was anticipating a fall in sterling although Number 10 declined to comment on currency movements. Related article Sterling falls below $1.20 ahead of May speech Sterling slid below the $1.20 mark for the first time since the October ‘flash crash‘ ahead of Theresa May’s expected signal that Britain will fully break out of the EU’s common market Downing Street has billed the speech as the Brexit plan promised by Mrs May in December. One aide said it would “provide some of the certainty that people have been looking for”, adding: “We’re moving towards the delivery stage of Brexit.” In an attempt to woo the global elite, the prime minister will travel to the Davos summit this week with her message of a “truly global Britain”. She will also be appearing in a fashion spread, shot last year by Annie Leibovitz, in American Vogue in April. “There is now a growing realisation in Number 10 — and perhaps more broadly across UK government — that the Brexit discussion needs to be less adversarial,” said Mujtaba Rahman of consultancy Eurasia Group. He said that Britain could quickly find itself “cornered” in a dispute over its share of EU fiscal liabilities, which Brussels has estimated could be as much as €40bn-€60bn. One business leader briefed on her thinking said Mrs May’s position on the customs union was still “very hedged”, with a view that Britain could leave and then opt back in to elements of it. Related article May’s Brexit plan: what we know so far There already some strong hints on the sort of deal the UK prime minister would like to negotiate In a sign of the advancing debate over the practicalities of Brexit, Gerard Lyons, a former economics adviser to Boris Johnson, called for Mrs May to abandon the “have our cake and eat it” approach to Brexit. The UK should not seek to remain in the single market or the customs union, even if no trade deal with the EU had been agreed before Brexit. Instead, the UK should settle for World Trade Organisation rules, and “less ambitious, sector-based agreements” where possible, said a report co-authored by Mr Lyons and published by think-tank Policy Exchange. Last week TheCityUK, Britain’s main financial services lobby group, moderated its hopes from Brexit when it dropped its aim of keeping British banks’ “passport” rights, which allow them to sell services to the single market. Mark Carney, the Bank of England governor, and Michel Barnier, the EU’s chief Brexit negotiator, have also struck a constructive note in recent days. Mr Carney said that Brexit was no longer the biggest financial risk facing the UK, while Mr Barnier told MEPs that the EU was willing to agree a “special relationship” with the City of London. However, some EU leaders are likely to take a hard line against Mr Hammond’s willingness to contemplate the UK’s becoming “the tax haven of Europe” after Brexit. Lodewijk Asscher, the deputy prime minister of the Netherlands, this week accused the British government of wanting a “race to the bottom for profits taxation”.