Brexit deal will not 'shut down' immigration, vows Chancellor

Immigration to Britain will be managed but not "shut down" after a "jobs first" Brexit, Chancellor Philip Hammond has said.

Mr Hammond also signalled the UK would seek to maintain the "frictionless" border arrangements of the European Union's customs union for an "implementation period" after leaving the bloc.

In a keynote speech to City leaders at Mansion House, the Chancellor again signalled his "soft Brexit" credentials by stressing Britain would leave the EU "in a way that prioritises British jobs and underpins Britain's prosperity".

The address will be interpreted as a fresh marker in an internal Cabinet battle over Brexit, with Mr Hammond apparently favouring an approach that puts businesses first while colleagues, including Theresa May, have made immigration controls a red line for negotiations.

Mr Hammond said he is not turning a "blind eye" to a "growing tide of hostility" against globalisation and mass immigration, and stressed he would push for a new phase of world trade that "delivers clear benefits for ordinary working people".

But he added: "We are not about to turn inward. But we do want to ensure that the arrangements we have in place work for our economy.

"Just as the British people understand the benefits of trade, so too they understand how important it is to business to be able to access global talent and to move individuals around their organisations.

"So while we seek to manage migration, we do not seek to shut it down."

Mr Hammond insisted the economy must be a priority in Brexit talks, noting that British people "did not vote to become poorer".

He said: "We recognise that this is a negotiation, and our negotiating counterparts, while broadly sharing our desire for a close ongoing relationship, will have their own priorities.

"So we must be clear about ours.

"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 outlined his three priorities for a "Brexit for Britain" - a comprehensive free trade agreement for goods and services, transitional arrangements "to avoid unnecessary disruption and dangerous cliff edges", and "frictionless customs arrangements" for cross-border trade and "crucially" to maintain the "open and free-flowing" Irish border.

"To do this in the context of our wider objectives will be challenging," he said.

"It will almost certainly involve the deployment of new technology.

"And therefore 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."

The Chancellor called for a "pragmatic" approach to financial services and said the UK must engage with the EU's "genuine and reasonable concerns" about its regulation given Britain's desire to leave the jurisdiction of the European Court of Justice.

He stressed the need to maintain the "critical mass" in the City of London and warned that, if banks and financial services firms are "fragmented" across the EU, it will lead to "poorer quality, higher priced products for everyone concerned".

But to achieve this the UK must be open to establishing a new system of regulation that governs both sides of the border with the EU, he said.

"The future of our economy is inexorably linked to the kind of Brexit deal that we reach with the EU," Mr Hammond said.

"And I am confident we can do a Brexit deal that puts jobs and prosperity first - that reassures employers that they will still be able to access the talent they need, that keeps our markets for goods and services and capital open, that achieves early agreement on transitional arrangements, so that trade can carry on flowing smoothly, and businesses up and down the country can move on with investment decisions that they want to make but that have been on hold since the referendum.

"The collective sigh of relief will be audible.

"The benefit to our economy will be huge in established sectors like manufacturing, the car industry, financial services, and pharmaceuticals, in emerging areas like biotech, and fintech, in the housing market, in the services sector, in the travel industry, in companies, large and small, right up and down our country. employing, between them, millions of people.

"Our departure from the EU is under way.

"But ensuring that it happens via a smooth pathway to a deep and special future partnership with our EU neighbours - one that protects jobs, prosperity, and living standards in Britain - will require every ounce of skill and diplomacy that we can muster.

"Yesterday was a positive start, it will get tougher.

"But we are ready for the challenge and confident that we can deliver for British jobs, British businesses, and British prosperity."

Mr Hammond also signalled Britain could seek access to money from the European Investment Bank (EIB) after Brexit and announced an expansion of domestic support for capital investment.

He repeated his assessment that Britain is "weary" of austerity "after seven years of hard slog", and indicated the Government could boost investment in public services and potentially raise taxes to pay for it.

The Chancellor noted higher taxes "slow growth, undermine competitiveness and cost jobs", but he failed to rule out increases, adding: "The Government will remain committed to keeping taxes as low as possible."

Mr Hammond said he also remains committed to the deficit reduction plan set out in the Autumn Statement, to achieve a balanced budget by the middle of the next decade, and said stronger growth is the only sustainable way to generate cash for public services.

The Government will now seek to address "domestic weaknesses that have plagued us" - public and private under-investment, inadequate skills and regional economic inequality, Mr Hammond said.

Alongside talks with the EIB to secure funding for businesses while the UK remains an EU member, Mr Hammond also announced:

:: Construction guarantees for infrastructure projects by broadening the UK Guarantee Scheme;

:: A consideration of "credit enhancement tools" such as first loss guarantees to reduce the financial risk of complex projects;

:: A raising of the limit on the amount the British Business Bank can invest in venture capital funds from 33% up to 50%, and a bringing forward of the £400 million additional investment announced in the Autumn Statement.

On the EIB, he added: "In the long term, it may be mutually beneficial to maintain a relationship between the UK and the EIB after we leave the EU.

"And we will explore the options together."