Economy: Spring Statement — House of Lords, 2018-03-15
Topic: Macroeconomics
Spencer Livermore (Labour, Centre-left): My Lords, I add my congratulations to the right reverend Prelate the Bishop of Lincoln on his maiden speech. In his Spring Statement on Tuesday, the Chancellor devoted just 75 words to the UK’s departure from the European Union. Yet, concealed in his numbers, the consequences of Brexit now cast a dark cloud over the entire British economy. The Chancellor sought to present himself as the great optimist, dressing up the OBR’s latest growth forecasts in a positive light. Of course, the 0.1% increase for 2018 is indeed welcome, but what he did not mention was how much lower those growth forecasts now are because of Brexit. To quote the OBR: "The vote to leave the European Union appears to have slowed the economy" The real picture is that, in each and every one of the next three years, economic growth will be significantly lower than the Government’s pre-referendum forecasts The Chancellor said that growth is now forecast to be 1.5% in 2018, 1.3% in 2019 and 1.3% in 2020. What he did not mention was that, before the referendum, the forecast for each of those years was 2.1%. In his Statement, the Chancellor described growth in the subsequent years, 2021 and 2022, as "picking up". Yet, compared to his Autumn Statement, the growth forecasts for those two years have in fact been revised down to 1.4% and 1.5% respectively. The Chancellor also failed to mention that at no point since the Second World War have there ever been five consecutive years of GDP growth below 2%—until now. Neither did he mention that the UK economy is forecast to grow 24% slower than the economy of the euro area over the next five years. Nor did he say that, having been at the top of the G7 growth league before the referendum, Britain is now not just at the bottom of the G7 but bottom of the entire G20 The director of the Resolution Foundation said: "Because it feels like old news the danger is we come to ignore quite how awful these economic forecasts are" The director of the IFS observed that these growth forecasts are, "dreadful compared with what we thought in March 2016, dreadful by historical standards and dreadful compared with … the rest of the world" The Chancellor might describe himself as "particularly Tigger-like", but it is doubtful that the British people will be enjoying themselves quite so much There were some other notable omissions from the Chancellor’s speech—on investment, trade, productivity and earnings. Investment is down in comparison with pre-referendum forecasts. The OBR noted that, by the end of 2017, business investment was almost 6% lower than the March 2016 forecast. The Bank of England has estimated that Brexit uncertainty has already lowered investment by between 3% and 4% and the OBR now expects investment growth to, "remain subdued in the face of Brexit-related uncertainty" On trade, the OBR now believes that the negotiation of a new trading relationship with the EU will slow the pace of import and export growth over a 10-year period and it expects export growth to flatline by 2022. Productivity growth has also been downgraded yet again in every year from 2019 and is now even lower than the extraordinarily bad projections made at the time of the Autumn Statement. Earnings will now not return to their pre-financial crisis peak until 2025, leaving Britain barely halfway through a 17-year pay downturn. Lower growth, a weaker economy, poorer people—all direct consequences of Brexit, yet none of them mentioned by the Chancellor One set of figures that the Chancellor did focus on were the OBR’s updated fiscal forecasts, where he sought to talk up the Government’s performance on both borrowing and debt. In his Statement, he made reference to debt being revised down, although debt will still continue to rise from £1.74 trillion this year to £1.83 trillion next year and £1.88 trillion by 2020. Of course, when the previous Labour Government left office, the debt-to-GDP ratio stood at 57.1%, whereas this year it will be 85.6% On borrowing, the £4 billion improvement in this year’s deficit since the autumn is of course welcome. However, the improved forecasts only reverse one-third of last November’s enormous Brexit-induced borrowing downgrade and the structural deficit in 2019-20 is almost completely unchanged. As a result, the Chancellor remains a decade off meeting his target of eliminating the overall deficit and any hopes of an end to austerity are sadly misplaced. While the former Prime Minister and Chancellor congratulated each other on Twitter on the elimination of the current deficit, they were seemingly unaware of the misery that their policies had caused, with homelessness doubling and child poverty rising by over 1 million to the highest level since records began. Now, under this Chancellor, cuts to day-to-day spending are set to continue well into the next decade. Funding to local government will fall by a further 20% over the next two years and, as my noble friend Lord Haskel said, nearly 80% of the benefit cuts announced in 2015 are still to take effect In his speech, the Chancellor claimed to be building, "a country that works for everyone".—[Official Report, Commons, 13/03/18; col. 722.] Yet as a result of the tax and benefit changes that this Government have made, the entire bottom half of the income distribution will now see their incomes fall. The second-poorest decile will lose £1,500 a year—a 10% fall—while the second-richest decile will gain £600, a 2% rise. The poorest working-age families with children will see an extraordinary 20% fall in their incomes, losing over £3,500 a year. Again, none of this was mentioned by the Chancellor. Throughout his Spring Statement, he seemed intent on concealing the damage done to our economy and the working families of this country We saw the exact same desire to conceal when the Government sought to avoid publishing their impact studies into the longer-term economic consequences of Brexit. These impact studies, finally published last week, show an even more significant cost of Brexit than we have seen so far. They show a 5% reduction in GDP from leaving the single market. They show new trade deals making up only 0.2% to 0.7% of that reduction. They show a devastating economic hit to every nation and region of the UK, with an 11% reduction in GDP in the north-east and an 8% reduction in both the north-west and the West Midlands. They show that leaving the single market would further increase borrowing by some £55 billion In his speech, the Chancellor speculated that the Labour Party could put at risk the recovery, threaten British jobs and burden the next generation, yet that is precisely what his own figures prove conclusively that his policies will do. Having seen the cost of Brexit so far and having commissioned their own Brexit impact studies, where the consequences are laid out in black and white, the Government have still chosen to pursue a policy that will demonstrably damage Britain’s economy. This is surely the first time that a Government have ever deliberately put aside the national economic interest and embarked instead on an economic policy that they know will make the country poorer. Why? Because this Government are now taking decisions not for the economic needs of the nation but for the ideological needs of the Conservative Party. As the economic costs of Brexit become clear and as we see the further devastating impact that the Government’s policy will have for decades to come, we must surely now ask: is this really the right path for our economy? Is this really the future that we want for our country?