Philip Hammond’s declare that Britain can reap an financial dividend from Theresa Could’s Brexit deal has been flatly rejected by MPs, as official figures confirmed the UK has suffered its worst 12 months for GDP progress since 2012.
In a extremely essential report, the Treasury choose committee warned that the chancellor’s claims of a “deal dividend” if Britain averted a no-deal exit lacked credibility.
The criticism got here after information on Monday confirmed the financial system grew by simply 0.2% within the remaining three months of 2018, down from 0.6% within the third quarter. The fourth-quarter figures contained indicators of a good sharper slowdown, with the financial system posting a decline of 0.4% in December amid indicators that Brexit uncertainty is taking maintain.
For 2018 as a complete, GDP progress slipped to its lowest since 2012, at 1.4%, down from 1.8% in 2017.
Nicky Morgan MP, the Conservative chair of the committee, mentioned Hammond’s “dividend” declare, on the Conservative social gathering convention final 12 months, had already been undermined by the federal government’s impartial forecaster, the Workplace for Price range Duty. The OBR had advised the committee the dividend was not an financial increase a lot as “avoiding one thing actually very unhealthy” within the type of a no-deal departure.
“The OBR already assumes an orderly Brexit, so there gained’t be a ‘deal dividend’ past the forecast simply by avoiding no-deal. Enterprise confidence might enhance with elevated certainty, however it’s not credible to explain this as a dividend,” mentioned Morgan.
The OBR has made a clean departure from the EU a key a part of its forecasts, which prompted the Treasury committee to state there is no such thing as a proof of an financial increase from supporting the deal over and above these central estimates.
Hammond has repeatedly prompt that, ought to parliament throw its weight behind Theresa Could’s Brexit plan, it could generate a twin financial increase for the nation by lifting the fog of uncertainty blocking companies funding, whereas additionally permitting him to spend public funds held in reserve for a no-deal state of affairs.
Reacting to Morgan’s feedback, Treasury insiders dismissed the suggestion that Britain wouldn’t see a deal dividend from MPs supporting the prime minister’s Brexit plan, as it could give companies extra readability concerning the future buying and selling relationship between the UK and the EU.
“The chancellor has been clear that after we agree a very good deal we are going to harvest a deal dividend. It is because companies may have the understanding they should make investments, develop and create jobs which is able to enhance the general public funds,” the supply mentioned.
Most economists consider that Britain agreeing a Brexit take care of Brussels would assist to offer companies readability for the long run, probably unleashing tasks which were placed on maintain because of the uncertainty.
Amit Kara, the top of UK macroeconomics analysis on the Nationwide Institute of Financial and Social Analysis, mentioned: “It may very well be a dividend as all we’re saying is we’re transferring from an acute part of uncertainty to remaining inside the EU for at the very least the subsequent two years.”
He added: “The dividend is simply due to the mess for the time being.”
The committee’s intervention undermines certainly one of Theresa Could’s key arguments to steer MPs to again her withdrawal settlement with lower than 50 days to go earlier than Brexit. It additionally comes because the British financial system reveals growing indicators of stress because the deadline for the article 50 course of looms ever nearer, inflicting extra enterprise to place their plans to put money into Britain on maintain.
Development figures from the Workplace for Nationwide Statistics revealed that enterprise funding within the remaining three months of 2018 declined sharply. Company spending tumbled for the fourth successive quarter – falling by 1.4% within the remaining quarter of 2018 alone – for the primary time because the 2008 monetary disaster.
Firms have intensified their contingency planning to deal with the potential of a disruptive Brexit. Automobile producers are stockpiling elements, banks have moved staff to Eire and continental Europe and two Japanese electronics companies, Panasonic and Sony, have moved their EU headquarters to mainland Europe.
Labour and commerce unions referred to as on the prime minister to take away no-deal Brexit as an choice as a way to shore up confidence in Britain, one thing which Could has up to now refused to do in negotiations with Brussels.
Frances O’Grady, the final secretary of the TUC, mentioned: “The prime minister’s failure to rule out a no-deal Brexit is harming confidence within the financial system and holding again progress. With our manufacturing sector in recession, the prime minister should act now to take away the specter of crashing out.”
GDP progress in December plunged into reverse, with a broad-based droop throughout every of the important thing sectors for the financial system. The manufacturing sector, which makes up a few tenth of the financial system, fell into recession, with six months of damaging progress within the longest damaging run since September 2008 to February 2009, the depths of the monetary disaster.
The month-to-month decline GDP of 0.4% helped drag down quarter-on-quarter GDP progress to a charge of 0.2% within the three months to the top of the 12 months, barely beneath the Financial institution of England’s expectations and down from a charge of 0.6% within the third quarter.
Whereas the slowdown mirrors a lack of momentum on the earth financial system, together with a deterioration within the eurozone, most analysts consider that distinctive challenges from Brexit have additional hindered UK progress.
Ben Brettell, a senior economist at Hargreaves Lansdown, mentioned: “There’s little doubt Brexit uncertainty is chargeable for the disappointing numbers, although considerations over world commerce can even have performed an element.”
The committee additionally warned that Hammond’s deficit discount goal – to get rid of the hole between authorities spending and earnings by the early a part of the subsequent decade – now lacked credibility. Britain crashing out of the EU with out a deal is predicted to come back with important damaging penalties for the general public funds, with potential for the deficit to widen.
Hammond opted on the final funds to boost public spending, with a £20bn a 12 months improve for the NHS by 2023-24, with out making important tax will increase to stability the books.
Referring to that call, the committee mentioned: “The federal government’s fiscal goal has no credibility and needs to be changed.”