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31 July 2017

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. 

By George Eaton

“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. 

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