The truth Brexit camp cannot face
THE downgrading of the UK’s credit rating by Moody’s this week is a big blow for the hardline Brexiteers. With the demotion late on Friday, the last vestiges of Britain’s former ‘Triple A’ status were swept away.
Britain held the coveted rank from the 1970s until 2013, but with this stripping of another pip, all three major credit agencies now place us a full two notches below.
The timing – on the day of Theresa May’s crucial Florence speech and just weeks ahead of the Budget on 22nd November – is bruising.
So is the language. Moody’s pulls no punches in saying it is ‘no longer confident’ that the UK Government will be able to secure a free trade agreement with the EU that will compensate for the ‘negative economic impact’ of Brexit.
Even a best case scenario, it points out, will not give the same access to the single market that the UK currently enjoys, but will involve additional costs, more red tape and put at risk close-knit supply chains linking businesses here with the EU.
And standard free trade arrangements don’t cover services, which account for 40 per cent of our exports to the EU and 80 per cent of gross value added to the economy
Brexit is intensifying the pressures on the public finances.
After seven years of austerity, voters are fed up.
The Government, therefore, is finding it harder to make the spending cuts it had planned in its efforts to balance the books.
Hence the capitulation on public sector pay curbs and the state pension triple lock. Plus the fact that, to commandeer a working majority in Westminster, Mrs May has had to mollify Northern Irish politicians with £1 billion of extra spending in the province, in what wags have called the NI contribution.
It’s hard to see Philip Hammond being able to square the circle by raising enough through extra taxes. The idea of a National Insurance increase for the self-employed was abandoned after vociferous protests. Corporation tax revenues have shrunk and increasing income taxes on individuals would be utterly unpalatable.
The only wheeze HMRC has come up with for squeezing out more is through anti-avoidance, and given the entire industry devoted to outwitting the taxman and minimising tax through legal means, that alone isn’t going to do the trick.
Brexiteers will rush to shoot the messenger, as they do. They will point out that Moody’s – and its fellow agencies Fitch and Standard & Poor’s, which have already demoted the UK to Aa2 – disgraced themselves in the run-up to the financial crisis by failing to notice the huge build-up of toxic debts.
It’s correct that their crediblity took a big knock in the cisis, but it doesn’t mean the credit agencies are not telling some uncomfortable home truths now.
The resources taken up by Brexit will limit the political energy available to tackle other challenges, in particular weak productivity.
This is a serious concern as 40 per cent of businesses are already cutting back on investment or delaying it due to uncertainty over Brexit, according to the CBI, putting at risk tomorrow’s living standards.
Desperate to blame anyone but themselves, the extreme Brexit camp simply throw stones at others.
But there are three good reasons to worry about Brexit, even if one is critical, as I am, of many aspects of the EU.
First, perhaps unfairly, it has created an impression to the world of a Britain that is backward-looking and insular.
Second, the sheer scale of the task of extricating ourselves, which will take time and energy away from more productive endeavours for years.
Third, because as Moody’s has divined, Brexit means placing enormous faith in the all-too human and fallible politicians who will have to deliver it.
Desperate to deflect blame, they simply throw stones at other people