Britain does not intend to lower taxes far below the European average in order to remain competitive after Brexit but rather expects to keep a recognisably European economic and social model, finance minister Philip Hammond said.
Hammond himself had suggested in January that Britain may have to change its economic model to remain competitive in the event that it left the European Union without having secured an agreement on market access.
The amount of tax that we raise, measured as a percentage of GDP, is within the European average and I think we will remain at that level
Hammond, who had campaigned for Britain to remain in the EU ahead of last year's referendum, is seen as a proponent of a relatively "soft Brexit", sometimes putting him at odds with cabinet colleagues who yearn for a cleaner break with the bloc.
Senior ministers have given conflicting signals over key issues such as whether free movement of people could continue after Brexit, with divisions coming out into the open since the ruling Conservatives lost their parliamentary majority in June.
In an interview with French newspaper Le Monde published over the weekend, Hammond was asked whether Britain would play the low-tax card to remain economically attractive after Brexit.
"It is often said that London would consider launching into unfair competition in terms of fiscal regulation. That is not our project or our vision for the future," Hammond was quoted as saying in response.
"The amount of tax that we raise, measured as a percentage of GDP, is within the European average and I think we will remain at that level. Even after we have left the EU, the United Kingdom will keep a social, economic and cultural model that will be recognisably European."
The comments were markedly different from Hammond's responses in his January interview with German newspaper Welt am Sonntag, which were seen as a thinly veiled threat to use corporate tax as a form of leverage in Brexit negotiations.
Asked directly whether Britain would lower corporate tax, Hammond had said that while he hoped Britain would remain a European-style economy with corresponding tax and regulation systems, it may have to change its model if it left the EU without agreement on market access.
"In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness," Hammond said. "We will change our model, and we will come back, and we will be competitively engaged."
It would be "very dangerous for Europe" to fragment the financial services market based in the City
In his Le Monde interview, Hammond was also asked to comment on the prospect of banks potentially moving part of their activities after Brexit from the City of London to EU cities such as Frankfurt, Paris or Dublin.
Hammond responded that it would be "very dangerous for Europe" to fragment the financial services market based in the City, which he described as an important component of the British and European economies.
"The big winner would not be Paris or Frankfurt, but New York. Let's not have any illusions: the major American banks are not going to fragment their activities between different countries," said Hammond.
"They will either keep working as they do today, or they will move their activities back to Wall Street, which is particularly attractive given that the U.S. administration is in favour of deregulation and cutting taxes."
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