Treasury wrong to support Project Fear, says watchdog

GEORGE Osborne’s ‘Project Fear’ campaign has been ripped apart by the Government’s own spending watchdog.

The former chancellor ordered officials to compile documents on the risks of leaving the EU, which warned Brexit could hit the public finances by £36billion a year, while GDP would be 6 per cent lower.

But one year on, the National audit Office has concluded the central forecast was based on false assumptions.

The Treasury believed the Government would trigger article 50 immediately, and excluded any potential policy response from the Bank of england.

in the event, neither of these assumptions proved correct, meaning the impact of the vote was mitigated.

The Treasury’s central forecast – based on Britain negotiating a Canada-style bilateral agreement with the EU – was for GDP to be 6 per cent lower, with tax receipts to take a £36billion-a-year hit.

The NAO concluded that estimating the economic impact of Brexit was complex as there was no precedent.

it said the extent of the impact depends on future Government policy and international negotiations, which are yet to take place. it added: ‘HM Treasury intentionally assumed no

‘Assumptions have not held in practice’

policy response. HM Treasury made this assumption in its modelling to avoid prejudging future government policy decisions.

‘separately, it excluded from the modelling any potential policy response from the Bank of england.

‘However, since the outcome of the referendum in June, the Bank of england has announced a package of measures designed to support the Uk economy, including an interest rate cut from 0.5 per cent to 0.25 per cent.’

The NAO said the Bank had also expanded the quantitative easing programme to buy government bonds by £60billion, purchased £10billion of corporate bonds, and introduced a new bank lending scheme to help small businesses.

it added: ‘some other key assumptions have not held in practice. in its short-term modelling, HM Treasury assumed that after a leave vote the Government would trigger article 50 immediately, in line with the then prime minister’s statement to Parliament on February 22, 2016, whereas in practice it was not triggered until March 2017.

‘Uncertainty will continue to remain for some time around the forms that trading relationships will eventually take after the Uk leaves the EU.’

The NAO set out a series of principles for such reports from Whitehall, saying there should be a more effective quality assurance process to guard against errors.

and it said independent experts should be brought in to oversee the analytical processes.