Brexit: Philip Hammond risks new cabinet rift by insisting current EU customs arrangements must stay

Chancellor Philip Hammond has risked deepening a cabinet rift with Brexiteer ministers by demanding Britain maintain existing customs arrangements with Europe until a new “long-term” system is fixed.

In a speech seemingly aimed at realigning the Government’s position on Brexit, Mr Hammond called for a feasible transition to provide stability for business before new arrangements kick in.

The Chancellor also hailed the benefits of foreign workers, striking a distinctly different tone to Theresa May’s immigration-centred Brexit rhetoric from before the election.

He made no mention of her “no deal” threat and warned that a failure to deliver prosperity would be a failure to deliver what British people voted for in the 2016 referendum.

Such a speech was unlilkely to have been possible before the election, with hard Brexit backers holding sway in the Cabinet and Ms May keeping her Chancellor, who wanted a different approach, “locked in a cupboard” during the campaign.

But the Prime Minister’s authority has been severely weakened in the wake of the botched election, with Mr Hammond on Sunday refusing to say how long he thought she might remain in post. The credibility of her Brexit vision in also in doubt following a day one U-turn in Brussels talks, giving Mr Hammond space to set out how the Government could now take a different tack.

He began his speech laying out the Government’s economic record, something he has previously said Ms May should have made more of during the election campaign.

He explained that a comprehensive free trade agreement was the key to achieving a “Brexit for Britain” and that it would require frictionless borders, where goods can flow freely.

Mr Hammond then said: “We’ll almost certainly need an implementation period, outside the customs union itself, but with current customs border arrangements remaining in place, until new long-term arrangements are up and running.”

Over the weekend, reports emerged that Brexiteer ministers are threatening to quit and challenge Ms May’s leadership if she weakens her staunch approach to Brexit, including any sign that the UK would remain in the customs union.

Mr Hammond then distanced himself from the anti-immigration rhetoric that has worried British business groups reliant on foreign staff.

Pointing out that the Tory manifesto had called for “an open economy and a welcoming society”, he said: “While we seek to manage migration, we do not seek to shut it down.”

The Chancellor, who is backed by other top Tories including Scottish Tory leader Ruth Davidson, said it was now time to put economic performance at the forefront of Brexit negotiations.

Speaking alongside Bank of England Governor Mark Carney, he admitted the referendum had probably dampened economic growth, with businesses “up and down” the country holding back on investment decisions.

He said: “I have said before, and I remain clear today, that when the British people voted last June, they did not vote to become poorer, or less secure.

“They did vote to leave the EU. And we will leave the EU. But it must be done in a way that works for Britain.

“In a way that prioritises British jobs, and underpins Britain’s prosperity. Anything less will be a failure to deliver on the instructions of the British people.”

Mr Hammond’s speech was originally planned for last Thursday, but was postponed after the Grenfell Tower fire.

The delay meant it was pushed back to after Monday’s launch of EU withdrawal talks, when Brexit Secretary David Davis went head to head with the bloc’s chief negotiator Michel Barnier.

In an embarrassing signal of Britain’s relative position to the bloc, Mr Davis was forced to drop his central demand that trade talks and divorce negotiations be staged in parallel.

Despite last month vowing to wage the “row of the summer” to secure immediate talks on a free trade agreement, Mr Davis caved on day one and agreed to first settle the UK’s separation, including a hefty bill.