Hammond admits two years to prepare for no deal
Appearing before the Treasury committee, Chancellor Philip Hammond discussed the potential impact of a ‘no deal’ Brexit and what preparations the Treasury and other government departments were making to reduce the impact on taxpayers
6 Dec 2018
When questioned about domestic preparations being made for the range of possible Brexit outcomes, Hammond said that a number of government departments, including HMRC, were taking steps to cover as many contingencies as possible. He noted that on 4 December 2018, ‘HMRC wrote to the 145,000 businesses who currently only trade with the EU and who therefore do not necessarily have an experience in dealing with export documentation or procedures’, explaining what they would need to do to ensure the continued flow of imports and exports. However, he admitted that a ‘no deal’ scenario would involve significant change.
‘If we were to end up with a WTO-type agreement with the EU, it would involve some very significant infrastructure work that would not be done in a matter of months.’ He said that it could take more than two years to develop new infrastructure, including IT systems that would be able to deal with the customs requirements of not reaching a deal.
These comments tally with those made by Jon Thompson, chief executive of HMRC, when he appeared before the committee on 21 November 2018, during which he said that an exports IT system would ‘probably take around 30 months’ to be fully operational. He said that the potential cost to businesses of failing to reach a deal would be twofold, in both administrative costs and tariffs to be paid.
He also admitted that the potential impact of a 'no deal' Brexit on the economy would be significant and that it would be difficult for the Bank of England to initiate cuts to interest rates in order to mitigate the effects. 'We would expect to see inflation rise sharply in response to a reduction in the sterling exchange rate', he said. 'The Bank's normal monetary policy response to that would be to have to tighten monetary policy, not loosen it'.
'In that scenario the Bank of England would be looking firmly at the Treasury to respond through a fiscal policy response'. He did not elaborate on whether this would involve temporary tax cuts or other measures.
Given the potential political uncertainty that may arise in the 100-plus days until Britain formally leaves the EU on 29 March 2019, he did not give an exact date for the Spring Statement. As he is required to give the Office of Budget Responsibility (OBR) ten week’s notice, he said that it would be given ‘no earlier than 26 February 2019, when parliament comes back from its February recess’ and that it would be ‘sometime between the end of the February recess and the end of March’.
Report by James Bunney