The chancellor’s statement glossed over some hard truths, writes Spencer Livermore
In his spring statement, Philip Hammond devoted just 75 words to the United Kingdom’s departure from the European Union. Yet, concealed in his numbers, the consequences of Brexit now cast a dark cloud over the entire British economy.
The chancellor sought to present himself as the great optimist, dressing up the Office for Budget Responsibility’s latest growth forecasts in a positive light. What he did not mention was how much lower those growth forecasts now are because of Brexit.
The real picture is that in each of the next three years, economic growth will be significantly lower than forecast before the referendum. The chancellor said he now expects growth to be 1.5 per cent in 2018; 1.3 per cent in 2019; and 1.3 per cent in 2020. But he did not mention that in each of those years it was forecast before the referendum to be 2.1 per cent.
Hammond also claimed that in the following two years, 2021 and 2022, growth was ‘picking up’. In fact, the growth forecasts for those two years have actually been revised down – to 1.4 per cent and 1.5 per cent respectively.
He also failed to mention that at no point since the second world war have there ever been five consecutive years of growth below 2 per cent – until now. Neither did he mention that the UK economy is forecast to grow 24 per cent slower than the Euro Area over the next five years. Nor did he say that, having been at the top of the G7 growth league before the referendum, Britain is now not just at the bottom of the G7, but bottom of the entire G20.
There were also some other notable omissions from the chancellor’s speech. He did not mention that business investment is now almost 6 per cent lower than the pre-referendum forecast. He did not mention that productivity growth has been downgraded yet again in every year from 2019 onwards. And he did not mention that earnings will now not return to their pre-financial crisis peak until 2025, leaving Britain barely halfway through a 17-year pay downturn.
One set of figures he did focus on were the OBR’s updated fiscal forecasts, where he again sought to talk up the government’s performance.
The £4bn improvement in this year’s deficit is of course welcome. However, the improved forecasts only reverse one third of last November’s enormous Brexit-induced borrowing downgrade, and the structural deficit in 2019/20 is almost completely unchanged. The chancellor remains a decade off meeting his target of eliminating the overall deficit, and any hopes of an end to austerity are sadly misplaced.
While David Cameron and George Osborne congratulated each other on Twitter for the elimination of the current deficit, they seemed unaware of the misery their policies have caused, with social care in crisis, homelessness doubled, and child poverty rising to the highest ever level since records began.
Now, cuts to day to day spending are set to continue well into the next decade. Funding to local government is set to fall by a further 20 per cent over the next two years. And nearly 80 per cent of the benefit cuts announced in 2015 are yet to take effect.
The chancellor claimed to be building ‘a country that works for everyone’. Yet as a result of the tax and benefit changes this government has made, the entire bottom half of the income distribution will now see their incomes fall. The second poorest decile will lose £1,500 a year – a ten per cent fall – while the second richest decile will gain £600 – a two per cent rise. And the poorest working age families with children will see an extraordinary 20 per cent fall in their incomes, losing over £3,500 a year.
Again, none of this was mentioned by the chancellor. Throughout his spring statement he was intent on concealing the damage done to our economy, and to the working families of this country. The exact same desire to conceal shown by the Government when they sought to avoid publishing their impact studies into the longer-term consequences of Brexit.
These impact studies, finally published last week, show an even more significant cost of Brexit than we’ve seen so far. They show a 5 per cent reduction in gross domestic product from leaving the single market. They show a devastating economic hit to every nation and region of the UK, with the north-east, the north-west and the west Midlands hit particularly hard. And they show leaving the single market would increase borrowing by some £55bn.
Having seen the cost of Brexit so far and having commissioned their own Brexit impact studies – with the consequences laid out in black and white – the government have still chosen to pursue a policy that will demonstrably damage Britain’s economy.
This is surely the first time a government has ever deliberately put aside the national economic interest and embarked instead on an economic policy it knows will make the country poorer. Why? Because this government is now taking decisions not for the economic needs of the nation, but for the ideological needs of the Conservative party.
As the economic costs of Brexit become clear, and as we see the further devastating impact Brexit will have for decades to come, we must surely now ask whether this is really the right path for our economy, or really the future we want for our country.
Spencer Livermore is a Labour peer and a former adviser to Gordon Brown. He tweets at @SpenceLivermore
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