UK preparing ‘buffers’ for no-deal Brexit: Hammond

Finance Minister Philip Hammond warned rebels in his Conservative Party that he would have to quickly reverse plans to ease nearly a decade of austerity if London fails to get a Brexit deal.Hammond, who is due to announce an annual budget plan today, said he would be able to show voters that “their hard work has paid off” as long as Britain achieves a smooth exit from the European Union in five months’ time.Hammond has angered many members of his Conservative Party by arguing Britain should remain close to the EU after Brexit and Prime Minister Theresa May has so far failed to bridge the divide in her party.Many investors and businesses are worried that the chance of a no-deal Brexit is growing.Hammond said he was confident that London and Brussels would settle their differences but “if we don’t get a deal...we would need to take a different approach to the future of Britain’s economy.”“We would need to look at a different strategy and frankly we’d need to have a new budget that set out a different strategy for the future,” Hammond said in an interview with Sky News broadcast yesterday.Most economists say Britain would suffer an economic shock if it leaves the EU with no deal.Hammond pledged that “fiscal buffers” would be in place to deal with the potential chaos of the country crashing out of the European Union without a deal in March. He stressed that he was keeping financial firepower in reserve in case Britain crashes out without a deal and a period of financial mayhem ensues.“What I will continue to do is maintain fiscal buffers, a reserve of borrowing power against my fiscal rules so that if the economy as a result of a no-deal Brexit — or indeed because of something else we haven’t anticipated — needs support for the coming months and years, I have the capacity to provide that support,” he said.“That depends on what the markets are doing, it depends at the circumstances at the moment.”Officials in Brussels say they are prepared to hold another summit as soon as they see substantial progress on the outstanding issue of the Irish border.A new UK-EU frontier will emerge between Ireland and Northern Ireland on March 29.But the sides still cannot agree how to maintain frictionless trade that accounts for the different customs and regulatory rules that exist between Britain and the EU.Hammond said that getting a deal “will minimise any negative effects” of the divorce but refused to be drawn on how much damage Brexit as a whole was causing.And he admitted that Britain would need to come up with a brand new budget in a no-deal scenario.“If we were to find ourselves in that situation, then we would need to take a different approach to the future of Britain’s economy,” he told Sky News.“We would need to look at a different strategy and frankly we’d need to have a new budget that set out a different strategy for the future.”But Jacob Rees-Mogg, a leading pro-Brexit lawmaker in the Conservative Party, downplayed the economic risks of Brexit.“The Treasury has rather embarrassed itself, has a lot of egg on its face from getting its Brexit-related forecasts so wrong so far and I think there is an element within the Treasury that is still grumpy about Brexit and that’s a pity,” he said.In his budget today, Hammond is expected to announce a further improvement in Britain’s borrowing projections, giving him a bit of room to ease nearly 10 years of steep cuts in many areas of public services.But despite the budget deficit falling sharply, Britain’s debt levels remain high, limiting how much Hammond can relax his spending squeeze.He said yesterday that the biggest increase in spending in his budget had already been announced when May said four months ago that more money would be earmarked for the health service.He is today set to announce other measures including more spending on roads to ease congestion and a tax cut for small retailers to help them compete against online competition.He hinted yesterday that he would provide money to soften the impact of changes to the welfare system.Hammond said the Bank of England as well as the finance ministry would have to take action if there is a no-deal Brexit.In the short term, Hammond said he could use some of the breathing space he has kept for himself inside his fiscal targets to help the economy.