During Brexit negotiations, the UK will seek to remain in the mainstream of the European market, but reserves the option to reinvent itself should that access not be forthcoming, said Philip Hammond, Chancellor of the Exchequer of the United Kingdom.
“I very much hope the outcome will be a high degree of reciprocal access between the UK market and the European Union market,” said Hammond. But “if we were to be, by some catastrophe, closed off from those markets, we would have to reinvent ourselves … to remain competitive in the world,” he said, adding: “We’ve reinvented ourselves before.” This leaves open the option of lowering the UK corporate tax rate, currently targeted at 17%, to attract greater investment.
Hammond was speaking at the 47th World Economic Forum Annual Meeting meeting in Davos, Switzerland.
Turning to the question of London’s position as a key centre for global capital markets, Jes Staley, Chief Executive Officer of Barclays, United Kingdom, said it would be “incredibly simplistic and wrong” to think that London’s status depends on a few banks. The ecosystem of supporting financial and legal services in the City is complex and critically important, but “it won’t be affected by a few thousand jobs moving here or there.” Staley voiced continuing confidence in the City but added that maintaining the free flow of capital is vital. “It’s very important that we don’t … create barriers that inhibit capital flows around the world,” he said, adding that he believes the UK-EU negotations will not curtail the freedom of those flows.
On the issue of immigration, Ngaire Woods, Dean of the Blavatnik School of Government at the University of Oxford, said her institution is fighting the world’s best universities to attract the top talent. If the message coming out of the UK is that it is not welcoming to immigrants, “we’re smashing our own kneecaps.” This message was echoed by Staley, who said the competitiveness of his business depends on being able to attract the best people for the job from around the world.
In response, Hammond said the political debate on migration during the referendum was not about skilled labour, but about the effects of large-scale unskilled migration driving down wages and taking jobs away from the low-skilled indigenous population. While the UK cannot accept the principle of free movement of people within the EU, “that is not the same as saying we want to close the doors,” he said. Hammond emphasized that “we still want to attract the brightest and best from around the world. We need them and we will go on welcoming them.” The UK has already proposed that the 3.2 million EU nationals living in UK should have the right to remain, as long as UK nationals living in the EU enjoy the same status.
Panellists were less positive about the impact of Brexit on the European Union itself. The financial crisis split the EU in two, with creditors in the North and debtors in the South dealing a blow to the bloc’s political solidarity, argued Ngaire Woods. “The integration project simply isn’t going to continue,” she said. Political parties facing elections in Germany, France and the Netherlands will have to show their citizens that they are in control. “We will see a core continuing with integration and a wider group still part of the EU but going their own way, as Hungary and Poland already are,” said Woods.
“I don’t disagree,” replied Mario Monti, President of Bocconi University and ex-Prime Minister of Italy. He said it is both likely and desirable that the EU’s structures should evolve, adding: “I see nothing wrong with a two-speed or three-speed Europe.” He also raised the spectre of British contagion leading to the disintegration of the EU and warned member states not to compete with each other to grant special status to the United Kingdom, saying it would be “organized suicide for the EU.”
Finally, commenting on today’s inauguration of Donald Trump, Hammond said, “The change of administration in the US has probably introduced an even bigger piece of uncertainty for the European Union” than Brexit. In particular, the eastern members of the EU are acutely focused on the challenge posed by Russia. “Anything that changes the settled status quo of a Europe that lives under a protective US umbrella … is going to play into the dynamics of the European Union,” he said.