Expect A Budget That Pays Lip Service To The Marvellous Opportunities Of Brexit - The Reality Is An Unfolding Economic Calamity

Expect A Budget That Pays Lip Service To The Marvellous Opportunities Of Brexit - The Reality Is An Unfolding Economic Calamity

When the Chancellor gets up to deliver his Budget statement it will be too much to expect consistency between his view of the impact on the economy of Brexit now and what it was before the referendum. It is now party line for Conservative politicians to pay lip service to the marvellous opportunities that Brexit offers in stark contradiction to their view before the referendum.

In this respect at least, the establishment of the independent Office for Budget Responsibility has been a blessing for us all. Their duty is to provide an objective, and apolitical, perspective on public spending. While public opinion can be swayed on issues such as the likelihood that our former colonies will rush to our aid, or the potential for us to export innovative jams to France and naan breads to India; or the likelihood that Argentina will vote for us to have tremendous terms at the WTO, the hard facts of economic statistics remain unmoved.

The most immediate and notable impact of our decision to leave the EU was a significant fall in the pound, a clear indication that investors and economists in other countries consider that Brexit has had a negative impact on our economy and the currency that it supports. You can see the ups and downs of the Brexit negotiations mirrored in the movements of our national currency and the indications are clear that, contrary to the bluster of Rees-Mogg and his colleagues, financial markets are deeply concerned about the possibility of a cliff edge Brexit.

The ripples caused by this massive stone thrown into the national economic pond have moved out in various directions. Most significantly they have caused prices to rise, and this inflation will cost the Chancellor dear since it is automatically linked to the rise in pensions, one of the largest items in his budget. We might have expected a weaker pound - making exports cheaper and imports more expensive - to have helped with our long-standing balance of payments problem. Sadly, the reverse has been the case, with the gap between the value of our exports and imports reaching a record high in August.

The pound is, in a sense, merely a marker of confidence in our economy, so what is it that financial markets are concerned about? An explanation can be found in a report published by Rabobank last month. It shows that our economy will be nearly 20% smaller as a result of our leaving the EU. This act of folly will make us all poorer. It will be like every fiver in every British pocket suddenly being replaced by four pound coins. This total loss of £400bn averages out at some £11,500 per person. That’s money that would otherwise have been circulating in the economy, paying restaurant bills, being spent in shops, and being taxed for investment in public services.

There are several causes of this economic depression. These include increased barriers to trade if we lose the protection of the favourable trade deals the EU has negotiated externally; losing the frictionless trade we benefit from within the single market and customs union; lower levels of foreign investment; and the losses businesses expect to suffer when they can no longer find the workers they need because of the ending of free movement.

Of course, you can question the accuracy of such modelling, especially by private companies which tend to benefit from the status quo. We know that the Treasury have conducted modelling of their own and making it available to the public is one plank of the legal case I am taking against the UK government together with the Good Law Project. So explosive are the findings of this report that the government have refused to confirm that it even exists - on the basis that knowing what we don’t know might in itself constitute a threat to national security.

In recent months it has become apparent that the Brexiteers may be running the whole show for their own narrow self-interest. Many of the most powerful supporters of the Brexit campaign appear in the Paradise Papers because of their offshore interests. This reveals that turning the UK into a low tax economy and one of the world’s leading tax havens was always a key part of the Brexiteers agenda. It is also the case that the turbulence brought by Brexit and the negotiations certainly offers great opportunities for hedge funds and financial speculators. Perhaps we should not be surprised then that these were some of the people that urged their fellow poorer and much more vulnerable citizens to vote to leave the European Union.

The Chancellor will try to deflect attention away from the serious threat that Brexit poses to public spending by offering a range of distractions from housing to electric cars. But the overall conclusion following seven years of Conservative rule is that austerity has been a disaster, with every target for deficit reduction missed while the public services and national infrastructure are in crisis. Indeed, yesterday we learned that Britain’s deficit was bigger than expected last month, with borrowing of just over £8bn to balance the books in October, up from £7.56bn in October 2016. The calamity of Brexit, which can only get worse once we actually leave the EU, makes every single one of these problems harder to solve.


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