Osborne got it wrong with ‘Project Fear’ predictions, says spending watchdog

GEORGE OSBORNE’S “Project Fear” warnings during the EU referendum campaign were wrong, the Government’s official spending watchdog has found.

The former Chancellor ordered Treasury officials to compile two reports on the economic risks of leaving the European Union which were pub- lished in the run-up to the vote.

The reports, which provoked a furious response from Eurosceptic Tory MPS, warned Brexit could lead to a “severe shock” and wipe £36 billion a year from the public finances.

However, an analysis by the National Audit Office (NAO) has concluded that some of the key assumptions behind the report were wrong.

Officials assumed that Article 50 would be invoked as soon as the referendum result was announced and that there would be no policy response from the Government or the Bank of England.

In fact Article 50, which formally opened Brexit negotiations, was not triggered until March this year while the Bank of England injected billions of pounds into the economy. The Treasury also assumed that there would be no economic benefits from removing red tape after Brexit, and that it would take 15 years to replicate existing trade deals with non-eu countries.

The NAO said that the nation’s productivity and employment has proved to be “very different” from the Treasury’s forecasts. It said: “Estimating impacts on economic variables is complex, particularly in assessing the potential consequences of leaving the EU, which has no precedent.

“The extent of the impact depends on future government policy and international negotiations that are yet to take place. This means that any estimates will be subject to a high degree of uncertainty.”

Officials claimed that Britain’s national income would take a hit of between 3.4 per cent and 9.5 per cent after 15 years if the UK left after leaving the European Union.

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

In fact in the final three months of 2016 GDP increased by 0.7 per cent.

The NAO said: “HM Treasury intentionally assumed no 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 added: “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 concluded that in future, independent experts should be brought in to guard against errors.