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The real reason the Tories can't turn the UK into a post-Brexit tax haven

The Brexiteers attacking Philip Hammond should remember that the Conservatives don't have a parliamentary majority. 

“The British people are not going to lie down and say, too bad, we’ve been wounded,” Philip Hammond warned back in January. Were the EU to deny the UK a beneficial trade deal, the Chancellor told German newspaper Welt am Sonntag, “we will change our [economic] model”. Tax cuts and deregulation would be deployed to transform Britain into a free market upstart capable of undercutting Brussels. 

Six months later, Hammond is arguing the diametrical reverse. “I often hear it said that the UK is considering participating in unfair competition in regulation and tax,” the Chancellor told Le Monde. “That is neither our plan nor our vision for the future. The amount of tax we raise as a percentage of our GDP puts us right in the middle of the pack. We don’t want that to change, even after we’ve left the EU. I would expect us to remain a country with a social, economic and cultural model that is recognisably European.”

Unsurprisingly, the Chancellor is being mocked from all sides for disagreeing with himself. “It’s one thing for cabinet members to contradict each other, but Hammond is taking the art of the Tory rift up a level – and creating a cabinet split with himself,” wrote Spectator editor Fraser Nelson. “This government has broken down into farce,” declared Labour's shadow chief secretary to the Treasury Peter Dowd. “The Chancellor is not only disagreeing with cabinet colleagues over Brexit, he is now in open dispute with himself given it is only his own comments on the matter in January which he is pretending to contradict.”

But there's an important point such derision ignores. In between Hammond's interviews there was the small matter of a general election. Had the Conservatives won the large majority they expected, the threat of a free market Brexit would remain. But without a majority at all, it is inconceivable. The Tories simply do not have the votes they need to slash taxes and regulation (as I noted last week.) Britain will not become the Hong Kong of the west (the oft-cited Singapore is a hotbed of interventionism.)

Though the hard Brexiteers will blame the “soft” Hammond for repudiating this path, the true blame lies with the voters. Had the Tories stood on the libertarian manifesto proposed by some, they would likely have fared worse, not better. As Labour's performance demonstrated, many voters crave a larger state. The Conservatives' free market wing has long hoped to use Brexit as a Trojan Horse to remake Britain as a low-tax, small-state utopia. But as Hammond has accurately surmised, that option no longer exists. 

George Eaton is political editor of the New Statesman.

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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.