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The former Chancellor, Mr Osborne, did not have many great reforming achievements, but let me praise one: the emergence of the Office for Budget Responsibility, which is essentially the benchmarking organisation that lets the Government know what fiscal room they have to work in, and lets us all know where the bodies are. The OBR made a series of assumptions in its central forecast for the Budget. The first was that the UK would leave the EU in April 2019. The second was that the money that we spend on the EU would come back and be spent broadly on the same things as before. The third was that we would need to make no exit payment, and the fourth was that no changes to taxes levied and payments made through the EU would be made over the period that the OBR looked at. It said:
“While the Government has now set out some of its objectives more formally, there is understandably little detail about how it intends to achieve them.”
Each of those assumptions is questionable at best; that is the fault not of the OBR, but of the Government. Each assumption will have a huge impact on the public finances. This was a Budget with a black hole at its very heart. Brexit is mentioned just once in the Red Book, yet we are entering the chilling reality of a hard Tory Brexit at a time when they have presided over seven years of economic failure and missed deficit reduction targets year after year. Short-term fixes have meant that the past decade’s most intractable economic problems have not been dealt with. Let us examine those assumptions.
The first assumption was that we would leave the EU in April 2019. I have no reason to question that after the Bill on article 50 passed through the Commons today, but we know that there could be a hard landing on to WTO terms, or a transitional deal. We could be doing this against the backdrop of one of our nation states leaving the other three.
The second assumption was that after Brexit, our money would return from the EU. The sum of £350 million a week was spoken about quite a lot during the referendum campaign. Where did that come from? It was an inflated figure; the actual cost to us is about £8 billion a year. Provided that we are able to do everything as efficiently as we do now—now, we pool the resources of 28 member states, but we will shift from sharing costs to them being borne by one state—and provided that we choose not to contribute any additional sums to our farmers, regional development, or university research, we will get back that £8 billion a year, but if the economy was just 1% bigger, borrowing could be some £14 billion lower each year. The Institute for Fiscal Studies says that if leaving the EU were to reduce national income by just 0.6%, that would be enough to outweigh the positive effects on the national finances. Bear in mind that the effect is cumulative; 0.6% lower in one year means that the economy is 0.6% smaller in every year going forward. That is because of lower tax receipts, higher debt, a larger deficit, and less to spend on public services such as our schools or the NHS.
The third assumption was that no exit payment would be made. The figure being talked about in Brussels is in the range of £50 billion or €60 billion. We have built up liabilities, commitments, and pension funds, and without settling those, we will not get the kind of deal that we want with the rest of the European Union. We have bailed out the banks, but actually we have had significant amounts of that money back. This will be a one-off payment that we will need to make, and it was not reflected in the Budget that we discussed this week.
The fourth assumption, which is no changes to taxes levied through the EU, rather begs the question: why are we doing this in the first place when we know that we are going to diverge over this period? What did we learn? We learned that economic growth is down, not up, from Brexit; that we will have lower tax revenues; that lower immigration will hurt us, not help us; and that a weaker pound will drive inflation, storing up the inflationary effects into 2017, 2018 and 2019. On trade and exports, UK trade will fall, slowing the pace of export growth for 10 years; business investment will be lower and will drop; and EU students and exports will drop off as well, taking money out of the real economy.
Last week, we learned that the Vauxhall van plant in Luton, where my dad and his dad before him worked, will be sold to a European firm. Despite the fact that that organisation is one of the most efficient and profitable parts of the business, the long-term future of that plant will be down to the kind of deal that we get on Brexit. Frankly, with an eight-year lead time on the van that we build there, I am perfectly content that the workers will see that through, and I thank PSA for its assurances. The reality is that when we look at Ellesmere Port, where a decision has to be made on a new vehicle coming in at the back end of 2018, it becomes abundantly clear why those of us on Labour’s Benches and some on the Government Benches say pushing for the hardest possible Brexit available is a bad choice; it comes at exactly the wrong moment for the kind of investment that we want. A hard Brexit is not some big bang, but the slow deflation of a balloon as the air comes out.
In conclusion, this Tory Budget amounts a massive hit to the public finances—around £100 billion. Targets have been abandoned, and there are no rules of the road. There is a lack of acceptance that the effects of this Budget will last for a long period of time. If we are going into a storm, the ship in in a poor state and the captain is driving us harder and harder into those choppy seas.