UK chancellor says he’s no enemy of Brexit and seeks close EU ties

At London Mansion House event Mark Carney unveils another overhaul of the institution’s powers

Britain's Chancellor of the Exchequer Philip Hammond delivers a speech at the Annual Mansion House dinner in London, Britain, June 21 2018. REUTERS/Henry Nicholls

Britain's Chancellor of the Exchequer Philip Hammond delivers a speech at the Annual Mansion House dinner in London, Britain, June 21 2018. REUTERS/Henry Nicholls

 

Britain’s Treasury is not trying to undermine Brexit but is instead focused on boosting prosperity by promoting continued close ties with the European Union after the country leaves, UK finance minister Philip Hammond said on Thursday.

Mr Hammond is widely viewed as the most pro-EU of Prime Minister Theresa May’s senior ministers, and earlier this month Foreign Secretary Boris Johnson described the finance ministry as “basically the heart of Remain”.

In a major speech to London’s financial services industry, Mr Hammond said his priority was preserving existing business and trade ties after Brexit, as well as seeking new global financial services deals with non-EU countries.

“That does not make the Treasury, on my watch, ‘the enemy of Brexit’. Rather, it makes it the champion of prosperity for the British people outside the EU, but working and trading closely with it,” he said in his annual speech at the Mansion House in the City of London, Europe’s biggest financial centre.

Britain will leave the EU in March next year, but a transitional trade agreement has not been finalised and there are disagreements among May’s top team over how much effort to put into maintaining close ties with the EU. Financial services are one of the thorniest issues facing Brexit negotiators. Mr Hammond defended a model he set out in March, under which Britain and the EU would allow cross-border trade in financial services on the condition that each side preserves regulatory standards in line with the best international standards. This model would be maintained by close co-operation between regulators.

But financial executives told Reuters last week they no longer believed it was realistic in the face of scepticism from the EU.

Bank of England Governor Mark Carney, speaking at the same event, said he thought a deal involving close regulatory cooperation “remains both feasible and in the interests of the UK, Europe and the world”.

Mr Carney said the Bank of England (BOE) needs to adapt to the unprecedented changes in the global economy and the financial system as he unveiled another overhaul of the institution’s powers.

Under a new framework outlined Thursday, the UK Treasury will pump £1.2 billion of capital into the BOE, which in turn will have the ability to take on greater risk if it needs to act to keep the banking system – and the economy – on an even keel.

The move further embeds the expanded crisis-fighting role of the BOE since the 2008 recession, while it could also enhance its ability to deal with upheaval related to Brexit. Mr Carney, who leaves the bank at the end of June 2019, has repeatedly said the the bank is ready for whatever happens with Brexit.

His comments emphasised the wide sweep of the the central bank’s responsibilities, which have expanded significantly under his leadership, and the need to prepare for the “fourth industrial revolution” amid a re-balancing of the global order and large demographic shifts.

The BOE will now be able to take more risk onto its balance sheet, but also gives it more leeway to support commercial banks and the economy when interest rates are close to zero. In effect, it gives the central bank another permanent tool to reduce financial instability. “Seizing the full potential of market-based finance requires the right soft and hard infrastructure for continually open markets,” Mr Carney said to an audience of bankers at the annual Mansion House event. “The bank’s new approach can be summarised in four words: we’re open for business.”

By contrast, the EU’s starting point is that Britain is entitled to no more than the basic ‘equivalence’ access given to non-EU countries after it leaves.

Even a so-called ‘enhanced’ version of this looked unsatisfactory, Mr Hammond said.

“Although I have heard talk of ‘enhanced equivalence’, I have not yet seen a credible proposal for what it might mean or a clear articulation of how it might work,” he said. “As of today, the most developed model ... is the one I set out in March.” - Reuters/Bloomberg