Sub Editor of Naked Politics
In place of the expected “punishment budget”, the biggest shock in Phillip ‘Captain Sensible’ Hammond’s first budget statement was the enthralling revelation that, after a jolly good think, he’s decided that the autumn and spring statement procedure must change – a bit. It was delivered with a sombre warning that the Office for Budget Responsibility is predicting lower economic growth and higher borrowing for 2017 than they were projecting in March. The remain-supporting media have leapt at the opportunity to claim this as irrefutable proof that we should never have voted to leave the EU.
Here’s why they’re wrong…
1. Experts are fallible, especially when it comes to economic forecasts.
In the immediate aftermath of the referendum, GDP was tipped to fall in the third quarter as a direct result of the vote. That was proven to be categorically wrong, as the economy grew by more than the pre-referendum expectations, let alone the post-referendum downgrade. That’s not to say that we should be drawing any hypocritical Post hoc ergo propter hoc “because of Brexit” conclusions from that; but it certainly shows that, contrary to James O’Brien’s LBC rants, experts’ worst-case-scenario guesses are not the same as hard evidence that we voted the wrong way!
2. A sudden U-turn would destroy the OBR’s credibility.
Did anyone really expect the OBR to reverse their previous gloomy forecasts in one go, revealing themselves to be either politically-manipulative, incompetent, or both? Careers and reputations are at stake. So, they were always going to persist with the original anti-Brexit line, with the pessimism gradually phased out. This buys time for any unforeseen external influences to either take an adverse effect that can be erroneously pinned on Brexit, or provide the boost that can be credited along with the increasingly common “despite Brexit” [insert good news].
3. Revised growth projections are not unique to the UK.
The fact that forecasts relating to all major economies are more pessimistic now than they were twelve months ago, is the sort of context that would be useful when assessing our own prospects. China’s unprecedented growth is slowing while debt accumulates at eye-watering pace. Having elected an unpredictable new president, there is huge uncertainty around the American economy. European figures have been revised downwards too, with the UK’s anticipated GDP in line with that of Germany, France and the EU as a whole. The OBR’s prudence may therefore be well placed; but using Brexit as the scapegoat is merely a face-saving exercise that smacks of intellectual dishonesty.
4. Almost none of the extra borrowing should be attributed to Brexit.
Despite the obvious public support for Brexit, much of the media remains steadfast on their anti-Brexit line, as they continue to feed us their fact free diet of deliberately misleading headlines. According to the Independent, Hammond has been forced to “admit to a Brexit Black Hole of £122 billion”. Whether our remain-backing Chancellor was really reluctant to throw Brexit under the big red bus is doubtful; but the hyperbolic claim itself is worse. More than half of the increase is driven by totally unrelated infrastructure investments that will be delivered over a six-year period, and the remaining £9.78Bn per year is linked to the questionable assumption that there will be lower immigration and a tenuous connection to higher inflation.
5. A slight fall in immigration is not a major concern.
As the fastest growing major economy, which is significantly more prosperous than the EU average, surely the prospect of greater restrictions to future immigration, it is likely to encourage poorer EU citizens to take advantage of ‘free movement’ while they still can? Perhaps this will be balanced up by the psychological effect of ‘not feeling as welcome’; but will a marginal fall really harm the economy anyway? For too long we have relied upon a rapidly increasing population to drive economic growth. The benefit is which is merely spread across more people, so what looks positive doesn’t translate into a genuine gain per person (GDP per capita). So, Hammond is correct to shift his focus onto three economic measures; productivity, productivity, productivity!
6. Inflation isn’t guaranteed, nor is Brexit the exclusive cause.
Inflation, which was again predicted to have materialising by now but hasn’t, might rise a fraction next year. Scary stuff! Pinning this to Brexit relies entirely on the idea that the value of Sterling would otherwise have remained constant. This contradicts the short, medium and long term trends. Throughout 2015 the IMF warned that the pound was overvalued by up to 15%. Given that it now sits 9% lower than it was on the day before the referendum, the difference is still within the expected range. It would be naïve to argue that Brexit has had no effect at all, but the effects are patently being overstated.
7. Short-term economic uncertainty was factored into the decision
Even if the OBR’s estimates do turn out to be more accurate than usual, everyone, on both sides of the argument, agreed that there would be some short-term economic uncertainty to deal with. Claims that this “new information” somehow undermines the Brexit vote, are therefore nonsense.
The reasons for voting to leave the EU were about liberty, sovereignty, patriotism, and the long-term economic prospects for future generations. Set against the magnitude of such considerations, a little turbulence along the way is neither here nor there. As Jacob Rees-Mogg puts it “assuming the government is sensible, and gets us out of the customs union, so we can set our own tariffs, then happy days are here again!”.