Tory drama on Brexit and borrowing

The Tory conference is barely a day old, and there is already quite a lot to absorb and contextualise. Here are my initial thoughts.

  • 1

Theresa May made it unambiguously clear that - barring capitulation by the rest of the EU - we are heading for a "hard" Brexit (even though she hates the hard/soft distinction). That was clear from her seemingly innocuous declaration that we would take back control of what's written on food packaging, because such autonomy on product specification is at odds with the rules of the EU's single market.

Theresa May delivering her speech on Sunday. Credit: PA

  • 2

We are also on our way out of the EU's customs union, the free trade area that allows goods to be shipped across borders without country-of-origin checks. That was what the foreign secretary Boris Johnson said when, with seemingly breathless excitement, he referred to "taking back control of our tariff schedules in Geneva, so that we can galvanise free trade".

This reference to negotiating new World Trade Organisation tariffs would be incompatible with customs union membership.

  • 3

Businesses and banks, who are desperate to keep us in the single market and customs union, have made a disastrous mistake in directing their lobbying at the Chancellor and the Treasury (admittedly they were encouraged to do this by the Treasury) - because they have only belatedly found out that the Treasury has been marginalised in Brexit preparations.

As it happens, the Chancellor and the Treasury - like big multinationals - believe that there will be a significant economic price to pay as and when we withdraw from the single market and customs union.

But the Treasury is being ignored. The loci of power on the hows and whys of leaving the EU are David Davis's Department for Exiting the EU and, above all else, 10 Downing Street.

Philip Hammond is set to outline his 'pragmatic' approach to tackling Britain's economy. Credit: PA

  • 4

We are in an unprecedented period, in the modern era, when there are literally no rules controlling how much the government can borrow - because the Chancellor has torn up George Osborne's fiscal rules, as he confirmed again this morning, but has not yet replaced them.

Philip Hammond has signalled that Osborne's plan to generate an overall surplus in so-called normal years is a dead duck - because he believes that being prohibited from being able to borrow to make investments that generate sustainable increases in our prosperity would be bonkers.

He wants the freedom to borrow to invest in housing and infrastructure (and is announcing a bit of this today). But he won't tell us how much borrowing freedom he will have. All he will tell us.