Former chancellor Hammond issues warning over state support for industry
Britain risks sliding back into the economic conditions of the 1970s unless Prime Minister Boris Johnson’s government sets out a clear framework for rules about state aid to companies once the United Kingdom completes its exit from the European Union at the end of the year, former chancellor Philip Hammond has warned.
Hammond was the government’s finance chief under Johnson’s predecessor Theresa May, and resigned when Johnson was confirmed as the Conservative Party’s new leader in summer last year, largely over the issue of Brexit.
This week, negotiations between the UK and the EU about a potential future trading relationship will resume, but with the end-of-year deadline looming, fears are growing about the likelihood of a no-deal Brexit, and what its economic impact would be.
Europe is also concerned that the UK government will replace EU subsidies with state aid, giving companies an unfair advantage, but ironically this would turn the economic policy clock back to how it was in the early 1970s, when Britain joined the EU’s predecessor organization, the European Economic Community.
That period was defined by industrial turmoil, strikes and under-performing industries being dependent on government aid.
It was Conservative Party leader Margaret Thatcher’s policies to break that cycle that propelled her to Downing Street in 1979. She stayed as prime minister until 1990, a period that defined Britain’s strained relationship with Europe, culminating in Brexit.
“It would be a fast-track back to the misery of the 1970s from which a Conservative government rescued Britain in 1979,” Hammond told the Financial Times.
In July 2017, when he was foreign secretary under May, Johnson told the House of Commons “There is no plan for no deal because we are going to get a great deal”, and two years later, he said the impact of no deal would be “very, very small”.
But with this year’s political agenda having been dominated by the novel coronavirus, which has pushed all else to the sidelines, the chances of a no-deal Brexit have grown considerably.
When talks have taken place, there has been a perceived lack of enthusiasm on the British side, with France’s Foreign Minister Jean-Yves Le Drian calling the British attitude “intransigent and frankly unrealistic”.
A second spike of novel coronavirus cases this winter would make a no-deal Brexit even more damaging for the British economy and electorate.
Cabinet Office papers leaked to the Sun newspaper last week set out what was called a “reasonable worst-case scenario” for the two coinciding.
It warned of potential petrol and power shortages, port blockades, and the possible obstruction of the medical supply chain.
Cabinet Office Minister Michael Gove defended the plans by saying the government was “working flat out to make sure the United Kingdom is ready for the changes” that would come at the end of the transition period, whether there was a deal or not, and “part of this work includes routine contingency planning for various scenarios that we do not think will happen, but we must be ready for come what may.”
