‘Tory austerity crippled the economy, and Brexit is going to ruin it — yet Theresa May still has no plan’
COMMENT STEWART HOSIE MP SNP ECONOMY SPOKESMAN
NEXT week’s Autumn Statement will no doubt contain the usual Tory blend of smoke and mirrors, meaningless soundbites, and a few welcome giveaways designed to catch the headlines and distract attention away from the state of the UK economy, the damaging impact of Tory policies on living standards, and the chaos caused by a divided UK government that – unbelievably – still has no plan for Brexit five months on from the referendum.
The threat of a hard Brexit is the elephant in the room – and in the absence of a clear plan any measures the Chancellor does announce can go nowhere near far enough to allay the threat it poses, reduce the uncertainty, or mitigate the damage it would cause.
It is not as if the Chancellor doesn’t know what the consequences of this will be.
The Treasury has carried out an assessment and its conclusions make for pretty grim reading: Tax receipts down between £38 billion and £66bn a year after 15 years and GDP down as much as 9.5 per cent if the UK reverts to WTO rules.
The impact on productivity is as bad. The LSE (Centre for Economic Performance) suggests reduced trade will reduce productivity amounting to between 6.3 per cent and 9.5 per cent of GDP. That is the equivalent of up to £6,400 per household.
For Scotland, leaving the EU is the biggest threat to our economy and longterm prosperity – with the potential to cost 80,000 jobs over the next decade and up to £11.2bn per year by 2030. So there must be a plan to ensure there is no hard Brexit.
There should be a plan to mitigate the losses in tax yield and GDP and it is imperative that we finally tackle the UK’s productivity issue. Worryingly, because of the way this Tory government has consistently mismanaged the economy, the UK doesn’t go into Brexit from a position of strength. UK GDP is already 20 per cent lower than it would have been even if we had achieved a paltry two per cent trend growth rate since 2008, and the austerity of this and the previous Government have stifled recovery by sucking consumption out of the economy – a mistake the UK will repeat again if it maintains a fiscal charter [which outlaws running deficits] which targets a surplus before recovery has been secured.
The impact of the Charter and its permanent surplus rule has meant that the UK targeted spending cuts of £10bn a year more than were required to run a balanced economy – and cuts of £50bn a year more than were required to run a balanced current budget.
And we all know where the impact of that was felt most. As discretionary consolidation, cuts and tax rises have risen – so has the ratio of cuts to tax rises.
This placed the burden of austerity from an arbitrary fiscal target firmly on the backs of the majority of families – hitting those just managing to get by, and the very poorest and most vulnerable hardest.
Putting aside the human impact – given that rising inequality actually weakens economic recovery too – I expect to ask the Chancellor: has this Government learned nothing?
Common sense tells us that we should not now be tightening the screws on the welfare cap making already difficult lives even harder and setting back recovery even further.
I do expect that the Chancellor will mention the recent actions of the Bank of England. And we certainly welcomed the action taken most recently by the bank in August to cut the base rate to a quarter per cent; to increase quantitative easing to £435bn including the purchase of an additional £60bn of UK Government Bonds; the purchase of up to £10bn of corporate bonds; and the provision of a new Term Funding Scheme to allow more, cheaper lending by banks.
It is hugely disappointing though that while the Central Bank has been engaged in significant monetary policy activism, the Treasury has been almost completely absent in the deployment of fiscal policy tools to grow the economy and counter the negative impact of Brexit.
The key demand we will make is for the Chancellor to match the monetary policy activism of the Bank of England with a fiscal stimulus of his own.
The Chancellor must finally lay out plans to support innovation and to provide certainty for capital investment
He must also confirm if it is still UK policy to double exports to £1 trillion this decade. This is important because total export sales were £517bn in 2013. That fell to £511bn in 2014 and down again to £509bn in 2015.
The numbers are moving in the wrong direction, yet if the government still expects us to believe that exports could effectively double in the next five years then they must reverse the cuts to the UK Trade and Investment budget.
If he refuses to budge it is hard to see how the debt, deficit and borrowing figures will be very much different at the end of this Parliament than were promised in 2010 for the end of the last one.
Not a decade of Tory austerity, but a wasted and futile one at that.