In presenting what he claimed was a ‘Budget for growth’ Jeremy Hunt opined that confidence in the future starts with honesty about the present. Too right, but he then delivered a speech completely lacking an honest appraisal as to why the UK economy is widely forecast to be the worst-performing advanced economy in the coming years. The primary reason is Brexit. Without a trace of irony Mr Hunt stated that his Budget would make Britain the best place to invest of any advanced economy. Humbug. As this blog has repeatedly pointed out, business investment has flat lined since the disastrous vote to leave the EU and is now some 20 per cent below the level economic experts estimate it would have been in the absence of Brexit.
The chancellor thought it would be a wheeze to present his Budget in terms of ‘four Es’: Enterprise, Education, Employment and Everywhere. No room for the only E that is going to return growth to its pre-2016 rate; namely, Europe. Pretty much every economist worth their salt recognises that without a significant increase in business and government investment Mr Hunt’s Budget claims can best be described by another E i.e., empty. Mr Hunt, to his credit voted to remain; one can only speculate as to his private thoughts now he is in pole position to observe the true and mounting costs of Brexit. By publicly aligning himself with his Party’s zealots who condescendingly dismiss experts seeking to warn of the longer-term damage being done to the economy by Brexit, he is destroying not only his own credibility but also the UK’s international reputation for economic management.
With massive understatement, the Chief Secretary to the Treasury told the redoubtable Evan Davis on the BBC that business investment is ‘not as high as we would like.’ He went on to concede that Brexit was slowing growth but stated that this was the cost of the decision that voters made to leave the EU and bizarrely added ‘they must make the best of it.’ Really, does the government believe that people knowingly voted to make themselves and their children poorer? A more honest interpretation would be that people were misled by the lies and ignorance of Leave campaigners. The post-Brexiters’ sham that it was all about democracy rather than economics is laid bare. Their contempt for Parliament – currently revealed by Mr Johnsons Partygate deceptions – and democracy is manifested in their modus operandi of blaming others, including now the voters, for the calamity.
Returning to business investment, or more correctly the lack of, the Chancellor announced that businesses will be able to immediately deduct 100 per cent of all plant and machinery investment when calculating profits. Unfortunately, Mr Hunts attempt to counter the effects of Brexit are unlikely to deliver more than a marginal improvement. The allowance is limited to three years and only to plant and machinery. The limited time period fails to offer the longer-term policy stability that firms need to plan, and its bailiwick overlooks the critical importance of items such as software and R&D in modern businesses. Moreover, he appears not to have learned the lessons from similar schemes in the past which encouraged unproductive investments rather than growth. I wonder did any of Mr Hunt’s advisers have the nerve to point out that the real incentives for investment are longer term opportunities, such as permanent, unfettered access to a market of 460 million people on our doorstep.
It appears the Prime Minister recognises this truth. He excitedly told an audience of Coca-Cola employees on his recent visit to Northern Ireland to sell his negotiated Windsor Framework that the province was in the ‘unbelievably special position, a unique position in the entire world … [because it] … had privileged access, not just to the UK home market but also the EU single market’. In his enthusiasm he failed to point out that the entire UK had full access to the EU’s ‘exciting’ single market before he and fellow zealots urged people to vote leave. It is instructive to compare the performance of the Northern Ireland economy with that of Great Britain. With access to the single market the performance of the province is closer to that of the more buoyant G7 members than GB.
Leaving the EU has been disastrous, but both the Chancellor and Prime Minister appear willing to risk further damage. Desperate to find a Brexit benefit they have resorted to their Party’s looney fringe for ideas. Readers may recall that for most of last year the UK had a (desperately seeking) Brexit opportunities minister; namely, Jacob Rees-Mogg, who having failed to find any practical opportunity, is now in the vanguard of pushing for the wholesale relaxation of regulations amassed during membership of the EU. As the UK is now, in theory, free to depart from the EU’s precautionary principle, they are proposing repealing City regulations put in place after the 2008 financial crash. These were designed to protect customers from the irrational exuberance of financial traders by separating their deposits from riskier investment banking operations. In their desperation the warnings of the bank of England have been played down, if not ignored. Hopefully, the current banking crisis will cause them to quietly drop their unfounded and dangerous belief in more risk taking.
It is unsurprising that having subjected the country to Brexit the government now seeks to avoid discussion of its true cost, but it is morally reprehensible to risk a future financial crash to claim a fictitious benefit. Once again, the toxic influence of Brexit on democracy hangs over the failure of opposition parties to openly discuss these costs and the urgent need to reverse their cause. Brexit is casting a long shadow over Keir Starmer’s intention as Prime Mister to deliver the fastest economic growth in the G7. He and his advisers must know that the Brexit hit to the economy can only be marginally ameliorated as long as the UK remains outside the single market.