Budget days aren't what they were. I for one don’t listen to the chancellor's speeches anymore. I think it best to wait a day or two until the experts take a look at the details in the so-called red book, officially known as the Financial Statement and Budget Report (FSBR). This is several thousand pages long when all the supporting documents are included. If you're of a mind to, you can see it all HERE. Chancellors simply use the opportunity to bolster the government’s political support rather than improve the economy so all too often, what he says (it's always been a he so far) and what he does are two totally different things.
The OBR also publishes its economic and fiscal outlook at the same time, which provides an altogether more sober, honest, and transparent picture of what’s going on in the economy. And at a more manageable 168 pages, it's easier to read. They conclude:
"The Budget announces a package of net tax cuts, including a further 2p cut to the main rates of employee and self-employed national insurance contributions, the cost of which is partially recouped by tax rises in later years. Borrowing is still projected to fall in each of the next five years thanks to tax as a share of GDP rising to near to a post-war high, debt interest costs falling, and per person spending on public services being held flat in real terms. This is just enough to meet the Government’s fiscal rules on our central forecast with underlying debt falling as a share of GDP in 2028-29 by a historically modest margin of £8.9 billion."
The reason, certainly one of them is Brexit although the word doesn't appear once in Hunt's budget speech.
However, there is no such reticence on the part of the OBR. On pages 37-40 of their fiscal outlook they specifically raise the impact of Brexit:
Box 2.4: How are our Brexit trade forecast assumptions performing?
"Since the June 2016 EU referendum, our forecasts have assumed that the volume of UK imports and exports will both be 15 per cent lower than if we had remained in the EU. We assume that the resulting reduction in the trade intensity of GDP will lead to a 4 per cent reduction in the potential productivity of the UK economy (relative to remaining in the EU), with the full effect felt after 15 years. A decline in trade intensity plausibly lowers productivity because trade, among other channels, fosters competition and allows countries to specialise in activities where they are relatively more efficient."
At the end, they say:
"Overall, our assumptions about the impact of Brexit appear to be broadly on track and recently published studies are also broadly consistent with these estimates."
This is an important point because the government claims it is meeting its own fiscal rules on borrowing, to have debt falling as a percentage of GDP by 2028-29, by what the OBR calls the "historically modest margin" of just £8.9 billion. The potential error in the OBR's forecast is measured in the hundreds of billions.
Usually, they can't forecast borrowing accurately for the next year.
Meanwhile Brexit and trade, which they can control but won't, is forecast to lose 15% of our trade and 4% of GDP. We can see nominal GDP will reach £3.18 TRILLION by 2028-29 by which time 4% will be worth £127 billion. And the 37.1% of this which is tax would be around £47 billion a year in lost revenue and hence foregone public spending.
Remember too that £47 billion would have been earned without any tax rate increases at all, it would all come from growth.
One can only hope that when Starmer and Reeves get in we will have a bit more honesty about the damage that Brexit is doing not just to the economy but also to truth and standards in public life.
