Brexit: Philip Hammond risks Tory Eurosceptic anger signalling 'status quo' will remain two years after withdrawal

Philip Hammond has risked angering Tory Eurosceptics by saying the UK’s Brexit transition deal would “replicate the status quo”.

The Chancellor said the deal sought by the Government would mean that while the UK “technically” leaves the customs union and single market, it will keep the same rules for trade and immigration for some two years after Brexit in March 2019.

His words are more specific than the broad-brush comments made by Theresa May about the UK’s desired transition deal, with Brexit-backing Tories likely to be angered by any approach that does not give Britain a cleaner break from EU structures and rules.

They also indicate that the UK is willing to accept Brussels’ proposals for the transition, which entail maintaining the status quo, even though Conservative Eurosceptics are urging Ms May to reject them.

Speaking while on a trade mission in China, Mr Hammond was asked whether firms should expect a transition deal that would see the UK stay in the single market, customs union and subject to the European Court of Justice.

He answered: “In a word, yes.”

He explained: “What they should expect as a result of the agreement we’ve reached this week with the European Union is a transition, or implementation period, which will start at the end of March 2019, during which we will no longer be members of the European Union.

“We won’t technically or legally be in the customs union or in the single market, 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, so that businesses can carry on trading with their commercial partners across the EU as they do now.

“Borders will operate as they do now and financial services businesses will be able to carry on conducting their business across borders as they do now.”

The EU’s guidelines for the next phase of Brexit talks were set out in Brussels on Friday, after leaders of the 27 other member states agreed to move on to the second stage of the process covering a transitional period and early talks on future trade.

It makes clear that during the transition the EU expects the UK to observe all of its rules – including freedom of movement – and accept the jurisdiction of the ECJ.

Asked about the terms yesterday, the Prime Minister said the British public has voted to leave the UK and that was what would happen.

But leading Brexiteer Jacob Rees-Mogg MP wanted a harder line, and said Ms May must not agree to the EU’s plans.

“We cannot be a colony of the European Union for two years from 2019 to 2021, accepting new laws that are made without any say-so of the British people, Parliament or Government,” he told BBC’s Newsnight.

“That is not leaving the European Union, that is being a vassal state of the European Union, and I would be very surprised if that were Government policy.”

The looming row over the terms of a transition deal comes after the Prime Minister was given a boost after agreement within the Tory ranks means she looks set to avoid a second Commons defeat next week.

Behind-the-scenes efforts resulted in a compromise which is acceptable to would-be rebels, who were set to reject Ms May’s plan to write 29 March 2019 into law as the date of the UK’s departure.

Cabinet ministers are due to discuss their preferred “end state” relationship with Europe for the first time on Tuesday, and pressure from Brussels is mounting on Ms May to deliver a detailed statement on her aims.