I have great respect for David Smith, the economics editor at The Sunday Times. I have followed his column for years and admire his clear thinking and lucid analysis. He is also a remainer. This week his column focuses on the chancellor's spring statement recently and how little light there actually is at the end of the tunnel, a tunnel that has got progressively longer since we first entered in 2009. He talks about the economy being close to the natural limits of what can be extracted from it in terms of tax while austerity fatigue has kicked in with increasing numbers of people recognising public services are under real strain.
Yet borrowing remains stubbornly high. He quotes Paul Johnson of the IFS saying, "even on current plans debt is not really due to fall". Johnson himself was saying a few days ago that taxes would need to rise by the mid 2020s if the books are to be balanced.
Smith also talks about the narrowness of the income tax base with 5% of earners paying 48.1% of all income tax. If these people, bankers and so on, decide to move to Europe we might be in real trouble.
With little room for manouver the chancellor cannot afford to turn the spending taps on and austerity will have to continue until 2025 or so at the earliest. We will then have had sixteen years of it. And this assumes the economy doesn't go into a recession and we continue to grow, albeit more slowly than before.
Now, let's look at the timing of Brexit. It came after seven years of austerity, with deep cuts to government spending. Indeed many people blamed the financial crisis and its aftermath for the referendum result. But having just started to pull ourselves out of the economic mire, Brexit has now plunged us back into it for another nine years! It could not have come at a worst time - for Brexiteers, as I wrote in March last year (HERE).
Brexiteers used austerity, without any justification, to push for us to leave the EU. For them it was an opportunity in a crisis. We should now do the same but from the other perspective. We need to show that this extension to austerity and the risks to our economy are all as a direct result of Brexit.
In fact, this is precisely what project fear predicted. It was actually project reality.
