Labour warns of '˜trade war' as Hammond gets tough with EU

Britain risks sparking a 'trade war' with Europe, Labour has warned after Philip Hammond warned EU leaders the UK could pursue aggressive business tax cuts if it isn't given a favourable Brexit deal.
Labour leader Jeremy Corbyn has warned the Tories could cause a 'trade war' with the EU. Picture: Yui Mok/PA WireLabour leader Jeremy Corbyn has warned the Tories could cause a 'trade war' with the EU. Picture: Yui Mok/PA Wire
Labour leader Jeremy Corbyn has warned the Tories could cause a 'trade war' with the EU. Picture: Yui Mok/PA Wire

The Chancellor said the government would consider abandoning the “European social model” and slashing corporation tax unless trade barriers for UK companies are lowered after the country leaves the EU.

It comes as government sources said that a major speech by Theresa May tomorrow on her negotiating strategy with Brussels will confirm she is seeking a hard Brexit – ie, being outside the single market and the customs union.

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The SNP warned that the government’s approach would put tens of thousands of Scottish jobs at risk, while Alex Salmond called on Labour MPs to join the SNP in trying to block the triggering of Article 50 in the House of Commons.

British Chancellor of the Exchequer Philip Hammond and British Prime Minister Theresa May tour engineering and scientific technology company Renishaw's innovation. Picture; gettyBritish Chancellor of the Exchequer Philip Hammond and British Prime Minister Theresa May tour engineering and scientific technology company Renishaw's innovation. Picture; getty
British Chancellor of the Exchequer Philip Hammond and British Prime Minister Theresa May tour engineering and scientific technology company Renishaw's innovation. Picture; getty

Nicola Sturgeon tweeted: “Looking like Brexit will mean low tax, de-regulated race to the bottom, with workers’ rights, environmental protection etc under threat.

“If that is the case, it raises a more fundamental question – not just are we in/out EU, but what kind of country do we want to be?”

In an interview with German newspaper Welt am Sonntag, Mr Hammond admitted the UK would suffer “economic damage” in the short-term from a hard Brexit, but said the government would do “whatever we have to do” to remain competitive.

The Conservatives have already pledged to introduce the lowest corporation tax rate in the industrial world, but Mr Hammond went further, delivering a shot across the bows of European leaders ahead of the start of talks in ten weeks’ time.

British Chancellor of the Exchequer Philip Hammond and British Prime Minister Theresa May tour engineering and scientific technology company Renishaw's innovation. Picture; gettyBritish Chancellor of the Exchequer Philip Hammond and British Prime Minister Theresa May tour engineering and scientific technology company Renishaw's innovation. Picture; getty
British Chancellor of the Exchequer Philip Hammond and British Prime Minister Theresa May tour engineering and scientific technology company Renishaw's innovation. Picture; getty

Asked if the government wanted to turn the UK into “the tax haven of Europe”, the Chancellor described the Britain as “European-style economy … with a social model that is recognisably the European social model”.

But he added: “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.”

Mr Hammond continued: “If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term. In this case, we could be forced to change our economic model … to regain competitiveness. And you can be sure we will do whatever we have to do.

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“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.”

Responding to the signals from Downing Street, Labour leader Jeremy Corbyn said the government was pursuing an “extremely risky” strategy that would turn the UK into a “bargain basement” economy.

“It seems to me a recipe for some kind of trade war with Europe in the future,” he said in a Sunday morning TV interview.

“[Theresa May] appears to be heading us in the direction of a bargain basement economy on the shores of Europe where we have low levels of corporate taxation, we will lose access to half our export market.”

Mr Corbyn reiterated his stance that Labour would not seek to block or delay the triggering of Article 50, but said he would try to influence negotiations through like-minded political parties in the EU’s 27 member states.

“The Brexit vote isn’t a one-off thing,” he said. “It has got to be agreed by 27 national parliaments, it has got to be agreed by the European Parliament.”

However, shadow foreign secretary Emily Thornberry said Labour would not “die in a ditch” to protect the free movement of EU citizens – one of the four pillars of single market membership.