Professor Patrick Minford is the economist and pin-up boy for Brexiteers. He's almost unique in advocating lowering tariffs and standards to zero and importing anything and everything from anywhere, something he openly admits would "eliminate manufacturing" in this country. I assume he thinks we can all work in the hospitality industry to welcome visitors who will be curious to see our post industrial living museum? Anyway he has an article in Brexit Central (HERE). It's worth a read to see how wrong he is.
The piece has the title: "The public finances tell the tale of the steadily improving economy (despite Brexit…)" - so you can see where he's coming from. Its a reassuring pat for any dedicated leaver who might be getting worried. This is what Minford says:
"But on present minimalist Treasury policies the PSBR is also falling steadily as a percent of GDP. It follows that the UK is now moving, slowly but encouragingly, towards a target safe debt percentage of around 60%".
If I turn to the OBR and look on page 95 (para 3.111) of their 2018 Fiscal Sustainability Report, issued just a few days ago (HERE) they are not so sanguine about debt and contradict his 60% figure:
"Our projection of public sector net debt falls from its peak of around 86 per cent of GDP in 2017-18 to around 80 per cent of GDP in 2021-22, before rising to 283% per cent of GDP after 50 years. The inclusion of the Government’s June announce ment of higher health spending more than accounts for the increase between reports. Excluding that increase in spending from our projection, public sector r net debt would reach only 218 per cent of GDP by 2067-68"
Debt never gets to less that 80% of GDP, a full 20% higher that professor Minford predicts. Bear in mind 20% of GDP is £400 billion so a not insignificant sum. It's about half of the total annual UK tax take.
Let's also look at his relaxed view of people's personal finances:
"However, with employment still growing and inflation at around 2%, incomes will be growing steadily during this financial year and revenue has a strong response to such steady growth".
Unfortunately, the ONS are not quite so optimistic (HERE). This is their take on it:
"On average, each UK household spent or invested around £900 more than they received in income in 2017; amounting to almost £25 billion (or about one-fifth of the annual NHS budget in England). Households’ outgoings last outstripped their income for a whole year in 1988, although the shortfall was much smaller at just £0.3 billion.
Even in the run-up to the financial crisis of 2008 and 2009 – when 100% (and more) mortgages were offered to home buyers without a deposit – the country did not reach a point where the average household was a net borrower.
People are surviving by using savings or borrowing - and not by a small amount - as we head into the greatest economic and constitutional crisis in our recent history. It really does not look good.
In years to come people will look back on Brexit and think the financial crisis of 2008-2009 was relatively good.
