Last week’s Autumn Statement has provoked an extended gloom-a-thon. Those hoping to reverse the UK’s Brexit referendum, inevitably, were out in force. Scandalized at not getting their own way, countless political and media bien pensants have been doing their utmost to talk down the British economy ever since the vote went against them five months ago.
The negativity that’s followed Chancellor Phillip Hammond’s first Commons set-piece is just their latest attempt to spread panic and cower the government ahead of crucial negotiations on our European Union exit.
The Chancellor himself, though, has also been at it. While he backed Remain, I accept that Hammond is fully committed to delivering the democratic will of the people. But he’s not above using Brexit as an excuse to avoid tough decisions and as an exercise in expectations management.
“Voting to leave the EU would create a profound economic shock and years of economic uncertainty,” said the Treasury in the March 2016 budget documents. Well, such a vote happened and the Office for Budget Responsibility has just forecast the UK will grow by 2.1pc in 2016 – higher than they predicted in March, despite there then being a widespread assumption that Remain would prevail.
Growth will be lower than previously forecast next year the OBR now says – 1.4pc rather than 2.2pc – and also in 2018 – down to 1.7pc from 2.1pc. During both 2019 and 2020, though, the UK will grow at exactly the same pace, 2.1pc, as the OBR was predicting before we voted to quit the EU.
So, let’s get this straight. UK growth in 2016 is better than the official estimates, despite the “profound economic shock” created by a Brexit vote. Growth will then be a bit slower for a couple of years, before returning to the identical rate it would have been had we not opted to leave – again defying the “years of economic uncertainty” warnings from Whitehall.
This Brexit-vote change to our growth outlook, then, is rather modest – a year of faster growth, two years of slower growth, then another two when we stay the same. Despite that, government debt is set to balloon over the next five years – with both the Chancellor and the Brexit-blockers combining to place much of the blame for that fiscal deterioration on our decision to quit the EU.
Between 2016 and 2020, the government is now set to borrow a colossal £216bn – up no less than £122bn on the official March forecast, before our Brexit vote. The national debt, we learnt last week, rockets towards £2,000bn over the next few years, exceeding 90pc of GDP – the level at which, numerous studies show, governments risk getting into serious debt-servicing difficulties, particularly when interest rates are likely to rise.
The Autumn Statement’s technical documents indicate the OBR places the blame for “around half” of the £122bn of extra borrowing on Brexit. That claim has been shouted from the rooftops by numerous Remain-backers, determined to cause as much Brexit-related alarm as possible, in a bid to keep the UK in the EU, or force the softest of soft Brexits, a referendum reversal in all but name.
Rows about forecast biases or the extent to which “independent” estimates have been subjected to political massaging are, ultimately, of little economic consequence. Official forecasts – from the OBR, The Treasury and others – are nearly always wrong, and have lately been woefully so. It’s worth pointing out, though, that we’ve had very chunky increases in OBR borrowing projections in the past, comparable to what we’ve just seen – notably in the Autumn statements of 2011 and 2012 – when Brexit wasn’t even on the cards.
My judgment is that we’re about to borrow more – a lot more – because the British state, in common with most of its Western counterparts, remains far too big and our political leaders seem incapable of articulating and implementing a policy of living within our means.
Shoving ever more debt onto our children and grandchildren, who will work and attempt to thrive in a world far more competitive than our own, is a dereliction of both our economic and moral duty. Yet, still, today’s politicians, cheered on by their media chums, keep extending and pretending, our governments borrowing ever more, our debt increasingly bought by our own central banks and financed by quantitative easing – money created from nothing.
Of course we’ll balance the books, but not yet. Here, in the US, across Western Europe, there’s always an excuse – “China”, “oil prices”, “terror” – why now is not the right time to wean financial markets off the funny money, to stop borrowing for a single year and – perish the thought – actually start reducing the national debt. Britain, lest we forget, has just abandoned our target finally to run a surplus in 2020, over a decade on from the financial crisis. Meanwhile, we’re implementing our third dose of QE. And right now, our excuse is “Brexit”.
I’ve always acknowledged that, during our negotiations to leave the EU, inevitable business uncertainty could lower investment for a while, impacting growth. That’s one reason I’ve strongly advocated a “clean” Brexit – with the UK, on invoking Article 50, declaring our willingness to accept an EU settlement based on WTO trading rules and related sector-based tariffs.
We’d probably end up getting a better deal than that – not least because German auto manufacturers, French food producers and Italian furniture makers know the value of the British market and would push their politicians to cut mutually-beneficial trade deals. But at least business would know, as a minimum, that we would fall back on WTO rules, and any change on that would be for the better, minimizing uncertainty.
What I don’t accept for one minute is what the Treasury, OBR and hardline Brexit-deniers accept as gospel – that leaving the EU imposes a long-term economic cost on Britain. I believe, on the contrary, it will be overwhelmingly to our economic benefit.
Membership of the EU’s single market is presented as the holy-of-holies. Why? We now do almost 60pc of our trade outside the single market, such trade is fast-growing and generates a £30bn surplus. Let’s try to retain access to the single market, yes, but not at the cost of accepting other EU rules and regulations that would slow our economy – and betray the wishes of the majority of British voters.
EU “passporting” rights for our financial services would be handy, but the biggest single country market for our financial services exports is the US – where we have no such rights and not even a trade deal. After Brexit, we’ll be able to trade freely, and cut trade agreements with the 85pc of the world that’s outside the EU – boosting our non-single-market trade even more. For a globally-oriented country specializing in services, that makes total sense.
The biggest uncertainties facing the UK don’t even include Brexit. They include next month’s Italian referendum, which Prime Minister Renzi could lose, paving the way for Eurosceptic comedian Beppo Grillo as leader of the eurozone’s third biggest economy, potentially sparking another disastrous eurozone crisis. They include Janet Yellen’s upcoming efforts to defuse powder-keg global equity markets as she attempts, finally, to nudge up US interest rates.
For now, the UK economy soldiers on. Our manufacturers just posted their best month for orders this year, with production expectations at their highest since February 2015. What Keynes called “animal spirits” are important, though, and if the Brexit doom-mongers persist with their self-indulgent moaning, our economy will suffer. Hammond must make sure he isn’t among them.