The Treasury and Brexit

I pointedout two days ago that the real costs of Brexit are long term, which unfortunately means that those who argued for Brexit will never be held responsible in political terms for the damage it will do. As John Springfordargues, that also strengthens the hand of those arguing for a hard Brexit (aka maximum damage). So who will speak for the 48%+ who want to limit the damage?

Potentially the majority of MPs do. We have united opposition from the SNP and LibDems. The great majority of Labour MPs also oppose Brexit. Polly Toynbee suggeststhis should become their unifying cause whatever the leadership does. And of course around half of Conservative MPs probably voted, in a personal capacity, to Remain. That has to be a worry for Theresa May, which is why she has made it clear that MPs will have no effective say in the Brexit negotiations.

So is this just going to amount to a lot of despairing and angry complaints as the Brexiters do their worst. Not quite. There is one source of opposition left standing (in the sense of having some power): Philip Hammond and H.M.Treasury. The Treasury has always been the job Hammond wanted, and not because he wanted to radically change that institution. It should also not be forgotten that it was Treasury economists who wrote the analysis suggesting the long run impact of Brexit on the UK economy could be very large, and the larger the further away from the single market we ended up being. Some will think this was a stitch-up job to please Osborne, but I think that is extremely unlikely. After all the Treasury analysis was pretty closeto other estimates, and it was overseen by Charlie Bean who is excellent at judging what is academically kosher.

It is for this reason that we are already seeing headlinestalking about Hammond blocking Brexit ‘progress’. How much power he has to do this will depend on the Prime Minister. If Theresa May sides with her Brexit ministers against Hammond, as it seems increasingly likely (see Martin Wolf here), this will mark the end of a long period where the Treasury has dominated economic policy in the UK.

That dominance started after a meeting in an Islington restaurant, where Gordon Brown extracted the maximum price for standing aside in favour of Tony Blair. The Treasury under Brown not only stopped Tony Blair from adopting the Euro, but also exerted a control over the economic aspects of other departments that had not been seen before. Under the Coalition government Osborne and Cameron worked very closely together, and the austerity strategy - supported by key Treasury civil servants - dominated the domestic agenda. If May sidelines Hammond over Brexit, the Treasury will have moved from dominance to playing second fiddle very quickly indeed.