UK looking at ways to cut cost of leaving EU customs union
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LONDON — The U.K. Treasury is looking at ways of reducing the damage to Britain’s economy of leaving the EU’s customs union, the department’s top official told MPs Wednesday.
In a sign that the Treasury is preparing for an even harder Brexit settlement than previously thought, Tom Scholar, permanent secretary to the Treasury, said there were a “range of mitigating actions” that Britain and its European partners could take to soften the blow of Britain leaving the customs union.
Scholar, who was appearing before the House of Commons Treasury Select Committee, also said that the Brexit deal that the government wanted to secure was not one of the three models the Treasury presented in a highly controversial analysis during the referendum campaign.
Some parts of that analysis resurfaced this week after a leak of a cabinet paper to the Times newspaper indicated that a “hard Brexit,” with Britain going out of the single market and relying on World Trade Organization rules, would cost the economy £66 billion a year in tax revenues.
Scholar said the analysis was “a useful and good framework” but “not directly applicable to the issue we’re now looking at.”
Scholar also told MPs that he expected the U.K. to go through a period of weaker economic growth “over the next few years” — a gloomier assessment than any publicly made by his boss, Chancellor Philip Hammond, or by Prime Minister Theresa May.
“Both the prime minister and chancellor have talked about bumps in the road over the time ahead,” Scholar said. “That is not to overdramatize it, it is just to recognize that we are making a transition from one set of economic relationships with our closest trading partners to another. Inevitably, that leads to some uncertainty and it would not be at all surprising if that uncertainty meant some period of weaker growth.”
He said that the Treasury did not yet know the full effect of the referendum result, or indeed the outcome of Brexit negotiations, but that the indications pointed to more sluggish growth.
“As of now, based both on what a number of external forecasters said and indeed what the Bank of England said … we expect all of that to lead at least to a period of weaker growth. I don’t know how much weaker, but in some sense weaker growth over the next few years.”
Asked if the Treasury was undertaking new analyses of the economic impact of Brexit, Scholar said: “Yes it is … just to take one example, the question about whether the U.K. should remain part of the customs union or not. There are two ends to that spectrum, there’s being in or being out, but within that there is, in principle, a range of mitigating actions that we could take at our borders, that European partners could take at their borders, that would reduce the cost of being outside.
“That is something which would be as much in their interest as ours because EU countries have every bit as much interest in access to our market as we have in access to theirs.”
The U.K. government has so far refused to reveal its stance on customs union membership. However, its public enthusiasm for forging bilateral trade deals with other nations has led analysts to conclude that May is resigned to leaving it, as countries within the customs union are bound by common external tariffs on goods and services and cannot strike bilateral deals.