It’s a treacherous time for Philip Hammond, for the prime minister and for the entire government. A great show is currently being put on in British politics. A phoney war endures. Britain is standing up to the European Union in its Brexit negotiations and the whole artifice of this government is founded on the notion that it can achieve some sort of Entente Cordiale 2.0 with Michel Barnier. Woe betide the senior government figure who stands up and starts dishing out awkward facts about the strains Brexit is placing on the government’s coffers.
That’s just what the Chancellor did today. On p3 of his speech, he hot-footed it right into very dangerous territory, getting to the point so quickly that the Commons, barely warned up, might have missed it. “We have already invested almost £700m in Brexit preparations,” he told the House, “and today I am setting aside over the next two years another £3bn.”
For the Brexit hard core on his back benches, the price of Brexit is not something to parade in public. The whole thing is meant to be about gains, not losses and certainly not expenditure. Government MPs looked unimpressed at this.
That already gives a total of £3.7bn, to be spent in the coming two years simply to prepare Britain for Brexit—it has nothing to do with the “Divorce Bill” which will come on top of all this. And Hammond went on to say that he stands “ready to allocate further sums if and when needed.”
This, then, is the cost of government business, of shipping David Davis to Brussels for his successive rounds of negotiations with Barnier, and to keep Liam Fox behind a desk somewhere. It’s a sharp reminder that Brexit’s chief effect so far, aside from the devaluation of the pound, has been a rapid expansion in the size of the government. That sort of thing used to be antithetical to most Conservatives. A good many of them seem more comfortable with it nowadays.
“Economic growth in 2016 was 1.8 per cent. It will be 1.5 per cent in 2017, falling to 1.4 per cent the year after”And then came the growth figures. The Office for Budget Responsibility has revised them all downwards, blaming this on “uncertainty surrounding Brexit continuing to weigh on business investment.” This in turn has put downward pressure on productivity.
Economic growth in 2016 was 1.8 per cent. It will be 1.5 per cent in 2017, falling to 1.4 per cent the year after, then to a low of 1.3 per cent, before picking up slightly. As Diane Coyle explained in our most recent issue, weak productivity growth is dragging the economy back. Paul Johnson, Director of the IFS, tweeted “Economy now forecast to be £65bn smaller in 2020 than the forecast in the March 2016 Budget. Lack of productivity growth a huge problem.”
It’s a grim picture, especially when you contrast it with the outlook for other large European economies. The IMF outlook is for our growth to lag behind France, Germany and Spain—a fact that is at odds with the idea that Britain is escaping a sinking EU. Quite the opposite, in fact.
Mood music is horribly important in politics, and the gloom surrounding the government is unmistakable. The Chancellor came out with some optimistic sounding ideas, such as his £500m for “a range of initiatives from Artificial Intelligence, to 5G and full fibre broadband.” But then that’s barely a seventh of what he set aside to pay for the process of Brexit.
You can see why he went for a big, attention-grabbing tax cut to stamp duty for first time buyers. But there can be no getting away from it. Brexit is already starting to bite. We are already paying for it. We have only just begun. At least the Chancellor has the decency to make that much clear.
