In a warning to the other 27 EU countries, Mr. Hammond said Britain could abandon its European-style taxation system and regulations if a favorable deal on single market access isn't negotiated with Brussels, telling German newspaper Welt am Sonntag that the country could "become something different."
The chancellor made the comments after being asked: "the impression on the European continent is that your government sees the future business model of the UK as being the tax haven of Europe."
May warns of drop in sterling.— Barry Gardiner (@BarryGardiner) January 15, 2017
Hammond threatens deregulated UK & low corporation tax
Is this the reality of Govt's clean hard Brexit?
"Most of us who had voted Remain would like the UK to remain a recognizably European-style economy with European-style taxation systems, European-style regulation systems etc. I personally hope we will be able to remain in the mainstream of European economic and social thinking. But if we are forced to be something different, then we will have to become something different," Hammond replied.
When asked to further clarify his comments, the Chancellor told the newspaper: "We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do.
"The British people are not going to lie down and say 'too bad, we've been wounded.' We will change our model and we will come back, and we will be competitively engaged."
Brexit Worries in Brussels
The comments will raise concern in Brussels that Britain may try to use the tax haven threat as negotiating leverage in upcoming Brexit talks.
There have been suggestions that British officials could resort to radically lowering corporate tax rates to attract business if it was unable to secure adequate single market access or a favorable post-Brexit deal with the EU.
The important thing Philip Hammond didn't say when he threatened to turn UK into a tax haven is what public services he proposes to cut.— Chris Giles (@ChrisGiles_) January 15, 2017
The veiled threat presents the EU with challenges ahead of trade negotiations, with European leaders keen to make sure the UK doesn't secure what is seen to be a positive deal upon leaving the bloc, in order to quash Euroskeptic movements within the bloc.
Corbyn: UK Risking EU Trade War
Responding to Hammond's comments, UK opposition leader Jeremy Corbyn said the government was risking a "trade war" with the EU, adding that it was pursuing an "extremely risky" strategy with its Brexit rhetoric.
He told the BBC, Prime Minister Theresa May "seems to be heading in the direction of a bargain-basement economy on the shores of Europe, where we have low levels of corporate taxation.
"We will lose access to half our export market," Corbyn said.
Corbyn tells #Marr he believes Hammond's comments to the German press suggest he's threatening a "trade war" with Europe.— Heather Stewart (@GuardianHeather) January 15, 2017
In reference to Hammond's remarks, he added: "He appears to making some sort of threat to the European community saying, 'Well, if you don't give us exactly what we want, we're going to become this strange entity on the shores of Europe.'
"It seems to me a recipe for some kind of trade war with Europe in the future. That doesn't really seem to me a very sensible way forward."
Dutch Deputy Prime Minister Lodewijk Asscher also raised concern about the UK's taxation issues, threatening to veto any Brexit trade deal unless Britain agrees on "firmly tackling" tax avoidance, fearing a "race to the bottom" on the issue.
British Prime Minister Theresa May is expected to further outline the UK's Brexit plans this week.