Treasury warned of economic shock... but here is the reality
PHILIP HAMMOND relied on analysis drawn up by Treasury officials in warning of “large fiscal consequences” for Britain of leaving the EU without a deal. Their analysis, he said, indicated that Britain would take a 7.7 per cent hit to GDP over the next 15 years if it were to leave under such circumstances.
The Chancellor’s sombre assessment brought a stinging response from Eurosceptics, with Jacob Rees-mogg lamenting: “As a dog returneth to its vomit, so a fool returneth to its folly. The Treasury is desperate to stop Brexit. Everything [it] does has to be read in this light.”
Despite his faith in what officials are saying, Mr Hammond has previously said that “forecasts are there to be broken”. But a look at what the Treasury previously forecast about Brexit, which Eurosceptics saw as “Project Fear”, suggests he should not forget that. Many of their predictions applied to what would happen in the two years after a Leave vote, so it is well worth seeing what officials warned, and what actually happened.
Fear: Recession by Christmas 2016
The Treasury envisaged that merely voting to leave the EU would cause an immediate “shock” that would see the economy “fall into recession with four quarters of negative growth”.
“Does Britain really want this DIY recession?” said George Osborne, the chancellor at the time.
Reality: The United Kingdom has not had a single quarter of negative growth after the referendum.
Fear: Tens of billions in extra borrowing
The Treasury expected that ministers would have to borrow tens of billions of pounds further amid the economic shock after a Leave vote. It estimated the bill after a year would be around £24billion, or as high as £39billion. Reality: The battle against the budget deficit is almost over, with official figures showing government borrowing has fallen to its lowest level in 16 years. Last month was the biggest surplus for any July since 2000 as receipts outstripped spending by £2billion.
Fear: Lower productivity
The Treasury used what it called “many cautious assumptions” to warn of “lower future productivity” after a vote to leave.
Reality: Official figures confirm that output per hour worked is higher than at the time of the referendum, with the last update from the Office for National Statistics revealing that it had grown by 0.9 per cent compared with the three months before. This marked the first rise since late 2016 and the biggest increase since the second quarter of 2011.
Fear: House prices falling by nearly a fifth
Mr Osborne was blunt during the referendum about what would happen to property prices in the two years after the referendum: “The country and the people in the country are going to be poorer. That affects the value of people’s homes and the Treasury analysis shows that there would be a hit to the value of people’s homes by at least 10 per cent and up to 18 per cent.” Reality: The average UK house price has risen over the past two years, the Office for National Statistics has confirmed, with it now at £228,384. That represents a rise of around 7 per cent.
Fear: At least half a million more people unemployed
The Treasury thought “unemployment would increase by around 500,000” after a Brexit vote. Officials thought the number could be as high as 820,000. The unemployment rate would increase by as much as 2.4 per cent. Reality: The number of people out of work has fallen markedly since the referendum, from around 1.63million to 1.36million. Such a low level has not been seen in over 40 years. The unemployment rate fell from 4.9 to 4 per cent.
Fear: Tens of thousands more young people out of work
The Treasury warned that youth un-
employment would increase by around 70,000 after a Brexit vote, and potentially by as much as 100,000.
Reality: Approximately 623,000 16- to 24-year-olds were out of work around the time of the referendum. It has since fallen to 492,000. The youth unemployment rate has fallen over the same period, from 13.6 per cent to 11.3 per cent – the lowest level on record.
Fear: Real wages shrinking
The Treasury said real wages would fall by at least 2.8 per cent, and as much as 4 per cent after a leave vote.
Reality: The latest figures from the Office for National Statistics show that real wages not only rose in the month after the referendum, but they are 0.8 per cent higher than in June 2016.
‘If it can’t be done at the end of October, what is an extra two to three weeks going to do?’