Philip Hammond has sought to reassure businesses that there will be no cliff edge when the UK leaves the EU in 2019.
Speaking in Beijing a day after EU leaders confirmed that “sufficient progress” had been made in the first phase of Brexit talks to pave the way for crucial discussions next year on trade, the chancellor said the UK would seek to replicate the status quo.
“We won’t technically or legally be in the customs union or in the single market,” Mr Hammond said. “But we’re committed as a result of the agreement we’ve made this week to creating an environment which will effectively replicate the current status quo.”
The EU decision on Friday gave a boost to Theresa May and paved the way for crucial discussions next year on trade. But the EU also stepped up calls on the UK prime minister to clarify what Britain wants from its future relationship with the bloc.
Mr Hammond said it was likely that the UK would want to secure specific, bespoke arrangements. “We have a level of trade and commercial integration with the EU27 which is unlike the situation of any trade partner that the EU has ever done a trade deal with before.
“So I expect that we will develop something that is neither the Canada model nor an EEA model, but something which draws on the strength of our existing relationship.”
In a summit in Brussels on Friday, the 27 other EU member states endorsed the European Commission’s recommendation that London had given enough guarantees on vital divorce issues — the UK’s Brexit bill, citizen rights and the Irish border — for talks to begin on a future relationship.
The decision sets the stage for agreement early next year on a post-Brexit transition period of about two years, as well as far more difficult discussions on what kind of relationship Britain and the EU will have after the transition ends. The commission will present its position on the transition period on Wednesday.
“The most difficult phase is ahead of us,” Angela Merkel, Germany’s chancellor, said after the meeting. “Britain has to tell us what they want.”
A senior EU official added: “So far what we have been hearing is firstly not very detailed and also not very convincing.”
Mrs May responded to Friday’s decision by tweeting: “We will deliver on the will of the British people and get the best Brexit deal for our country — securing the greatest possible access to European markets, boosting free trade with countries across the world, and delivering control over our borders, laws and money.”
But British business warned that there was little time to lose. While the transition talks are scheduled to start in January, the EU says the formal negotiations on future ties will not start until March.
“Further delays to discussions on an EU-UK trade deal could have damaging consequences for business investment and trade, as firms in 2018 review their investment plans and strategies,” said the heads of the British Chambers of Commerce, the CBI, the EEF manufacturing association, the Federation of Small Businesses and the Institute of Directors.
Although Mrs May says she wants to conclude a full-fledged trade deal before Brexit day, the EU said in guidelines formally adopted on Friday that, ahead of the UK’s departure, the two sides will only issue a “political declaration” on a future relationship. The guidelines said a final agreement would only be possible once Britain left the bloc.
Britain is keen to maintain its financial services sector’s access to the European market, but Brussels insists that the UK can no longer enjoy the full benefits of the EU single market if it restricts EU citizens’ freedom to live and work in the country.
Instead, EU officials suggest that the UK’s stance on issues such as free movement point to a free-trade deal along the line’s of the bloc’s agreement with Canada, which has only very limited provisions for services.
Mrs May was not in the room when her fellow heads of government quickly signed off on the end of phase one. But she had been applauded by other leaders after a brief intervention at the summit on Thursday evening — a gesture that Jean-Claude Juncker, the president of the European Commission, said was recognition that “she did make a big effort and this has to be recognised”.
Additional reporting by Michael Acton and Rochelle Toplensky
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