The chancellor fails to enumerate home truths about Brexitby Paul Wallace / October 1, 2018 / Leave a comment
In the civil war that is today’s Tory party, Philip Hammond represents the dour Roundheads doing battle with the swashbuckling Cavaliers reborn as hard Brexiters. In government, the chancellor of the exchequer is the reality check to the castles they keep on building in the air. Disappointingly, he missed an opportunity today to inject some sense into the Conservative Party conference in Birmingham.
Hammond did give strong support to Theresa May’s beleaguered Chequers plan, which is dismissed by hardline Brexiters such as Boris Johnson, saying that “we must stand four-square behind the prime minister.” The chancellor explained why the plan’s goal to retain as close as possible a relationship with the EU in goods is essential. Britain’s manufacturing and retailing economy has become tightly integrated with Europe following 45 years of membership. He pointed to the intricate supply chains that link Britain with Europe and the many thousands of lorries passing through Dover and the Channel Tunnel each day. And he stressed that the Chequers plan would avoid a hard border in Ireland.
However, Hammond failed to set out how and why a no-deal Brexit would be calamitous for the economy. Given the damage it would create, his promise to maintain enough “fiscal firepower” to support the economy in such a dire event offered scant comfort. And he was disingenuous in highlighting a “deal dividend” in higher growth and better public finances following a successful conclusion to the negotiations between Britain and the EU, assuming that such an agreement can be pushed through parliament. Any such “dividend” would no more than partially compensate for the setback to growth arising from the Brexit-induced uncertainties.
Hammond could usefully have spelt out the damage that has already occurred since the referendum in June 2016. Even though the economy avoided an immediate recession, it has performed much worse as a result. According to the Centre for European Reform, a think tank, GDP is now 2.5 per cent smaller than it would have been if the vote had gone the other way.
The chancellor could also have set out the implications for the public finances. Since GDP is the tax base yielding about 40 per cent in revenues, such a shortfall in growth means a loss of revenue amounting to around 1 per cent of GDP. Armed with that lost revenue,…