The government intends to begin the formal exit process by the end of March, starting the clock ticking on a two-year deadline to negotiate its departure and future relationship with the bloc.
Hammond said there was an “emerging view” that “having a longer period to manage the adjustment between where we are now, as full members of the European Union, and where we get to in the future… would be generally helpful”.
It “would tend towards a smoother transition and would run less risks of disruption including, crucially, risks to financial stability which must be a fairly real concern”, he told parliament’s Treasury committee.
This view was held by businesses, regulators, “thoughtful politicians” and civil servants on both sides of the English Channel, he said.
The European Commission’s chief Brexit negotiator, Michel Barnier, warned last week: “As we don’t know what the UK wants and is waiting for, it’s difficult to imagine a transitional period.”
Hammond conceded: “We can only get to a situation where we have a transition if there is a genuine meeting of minds on both sides of this negotiation.”
The CBI business lobby group warned last month of a “cliff-edge” where Britain leaves the EU after two years without a new trading arrangement in place.
Hammond said: “It’s not just the business sector, it’s the government sector that has had to think about how long it takes to make changes, hire people, train people, introduce IT changes.”
He noted that the possible reintroduction of border and customs checks would require many more officials to be trained, a process that would cost money and time.
Hammond campaigned for Britain to stay in the EU and, while backing the government’s promise to implement the June referendum vote to leave, is widely viewed as pressing for a “soft” Brexit.
Others in Prime Minister Theresa May’s cabinet, such as international trade secretary Liam Fox, want a swift, decisive break with Brussels.
Brexit minister David Davis said last week that Britain would seek to agree both its withdrawal and a future trade deal with the EU within the two-year timeframe.
However, that goal is under pressure after Barnier said that the negotiations must be completed within 18 months to allow time for ratification.
Hammond’s comments came ahead of a House of Lords report released on Tuesday, which said Britain needs to draw up transitional arrangements to carry on trading with the EU after Brexit while they negotiate a long-term trade deal.
“Although this would require clarity on the principles of what the UK is transitioning to, it would not delay the UK’s withdrawal.
“But it would safeguard current trade and provide adequate time for negotiations,” the joint report by the House of Lords’ EU Internal Market and External Affairs Sub-committees said.
Negotiating a comprehensive free trade agreement with Brussels would not be possible within the two-year period set out for Brexit talks, the report said. — AFP