Hammond threatens EU with aggressive tax changes after Brexit

Chancellor tells German newspaper if Britain were closed off from markets it may abandon European-style social model

The chancellor, Philip Hammond, has suggested Britain could transform its economic model into that of a corporate tax haven if the EU fails to provide it with an agreement on market access after Brexit.

In an interview with the German newspaper Welt am Sonntag, Hammond said that if Britain were closed off from European markets after leaving the EU, it would consider abandoning a European-style social model with European-style taxation and regulation systems, and “become something different”.

The chancellor made his remarks in response to the suggestion that “the impression on the European continent is that your government sees the future business model of the UK as being the tax haven of Europe”.

Hammond responded that “most of us who had voted remain would like the UK to remain a recognisably European-style economy with European-style taxation systems, European-style regulation systems etc. I personally hope we will be able to remain in the mainstream of European economic and social thinking. But if we are forced to be something different, then we will have to become something different”.

Asked to clarify his remarks, Hammond said: “We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do.

“The British people are not going to lie down and say ‘too bad, we’ve been wounded’. We will change our model and we will come back, and we will be competitively engaged.”

Hammond’s rhetoric seemed to be at odds with the message he tried to convey to his German counterpart, Wolfgang Schäuble, during a trip to Berlin last week, namely that the UK had no desire to disrupt the EU during its divorce from the bloc.

In his interview with Welt am Sonntag, Hammond also emphasised that restricting immigration would be the British government’s priority during negotiations. “We are aware that the message from the referendum is that we must control our immigration policy,” he said.

Unlike in previous interviews, the chancellor would not be drawn on a guarantee that highly skilled workers from the EU would still be allowed to settle and work in the UK. “Assuming you hold a German passport, you can travel to the UK to do business and to travel, of course,” he said. “The question is about the freedom to travel for work, the freedom to settle and the freedom to establish a business.”

Reports suggest the prime minister, Theresa May, is looking into restricting access for EU workers for “every sector and every skill level”.

The chancellor, however, rejected his interviewers’ suggestion that the UK and the US, traditionally the leading champions of capitalism and free trade, were “turning their back to the world”.

“I would reject that emphatically,” Hammond said. “I can’t speak for what is going on in the US, that is a different political movement. But in my judgment, it would be a mistake to read the Brexit vote as being part of the same strand of thinking that has formed in the US.

“If you look at the media and the reporting during the Brexit referendum campaign, there was no anti-trade rhetoric. It was the exact opposite.”

Hammond said he was hopeful that the terms of Britain’s exit from the EU and its new status could be discussed in parallel once the government had triggered article 50 by 31 March.

“The treaty is clear that the negotiation of an exit agreement has to take account of the future relationship between the parties. To do that we have to talk about the future relationship. So we would expect that we would discuss the topics in parallel,” he said.

At the same time, he conceded that it could be necessary to create an interim deal to cover the “period between Britain leaving the EU and the full introduction of a long-term future arrangement between the UK and the EU”.

“In such a case, we would have to decide what happens in the period between leaving the EU and the commencement of such an agreement in the interim period,” he said.