Tory MP John Redwood has rubbished Chancellor Philip Hammond’s claim that a no-deal Brexit could have "large fiscal consequences", calling it “twaddle”.
Hammond wrote a letter to Nicky Morgan, chairwoman of the Treasury Select Committee, saying GDP could fall and borrowing could be around £80 billion a year higher by 2033/34 under a scenario in which Britain resorted to World Trade Organisation (WTO) terms due to no agreement with the EU.
His claims were made on the back of disputed provisional analysis released earlier this year.
“The Chancellor may not have intended for it to be as firm as it’s come across in the Remain-seeking press and media, but clearly what people have done is taken out of his ill-judged letter the idea that over 15 years, on the models that some civil servants have developed, there could be a loss of GDP relative to what we’d otherwise achieve,” said Redwood.
'Dodgy project fear'
Brexiteers dismissed Hammond’s letter as scaremongering, with Tory MP Marcus Fysh saying it was "another instalment of dodgy project fear".
Jacob Rees-Mogg told BBC Newsnight it was “Brexit panic”.
“Of course the phrase ‘there are serious fiscal consequences’ is going to be taken out of his letter and blown up, it’s completely wrong, it’s utter twaddle,” Redwood told Ann Widdecombe on talkRADIO’s mid-morning show (watch in the video above).
He also criticised the analysis methods to come up with the predictions.
“The thing I liked most in the letter was the beautifully understated comment that the CGE model [computable general equilibrium model, which uses data to predict how an economy might change] used by the cross-Whitehall groups, the thing that produces these silly numbers, is not well suited to analysis of short term developments.
“You bet it isn’t, that's why they’ve had to put that in!” he said.
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Hammond wrote that the analysis was undergoing a “process of refinement in the run-up to a parliamentary vote on the deal”.
“When they tried this for a two year forecast before the referendum they became spectacularly unstuck, they were forecasting 800,000 job losses, a major collapse in the property market and a big fall in GDP, and we’ve sailed on beautifully with no such effects. This long term forecast has even less credibility than their short term one.”
He added that he didn’t “expect the EU to mount an economic blockade of the UK in the way that some extreme remain commentary is suggesting they will”.
In his speech yesterday, Dominic Raab repeatedly spoke of his hope for harmonious relations with the EU even in the event of a no-deal.
What did Hammond say in the letter?
The Chancellor warned of a fall in GDP and said various business sectors would be affected. Here are some key extracts:
“This January provisional analysis estimated that in a no-deal/WTO scenario, GDP would be 7.7% lower (range 5.0%-10.3%) relative to a status quo baseline. This represents the potential expected static state around 15 years out from the exit point.
"The analysis did not estimate the path the economy and different sectors might take under no deal and the potential for short-term disruption…
"Under a no-deal/WTO scenario, chemicals, food and drink, clothing, manufacturing, cars, and retail were estimated to be the sectors most affected negatively in the long-run, with the largest negative impacts felt in the North East and Northern Ireland.
"GDP impacts of this magnitude, were they to arise, would have large fiscal consequences. The January analysis estimated that borrowing would be around £80 billion a year higher under a no-deal/WTO scenario by 2033-34, in the absence of mitigating adjustments to spending and/or taxation, relative to a status quo baseline.
"This is because any direct financial savings are outweighed by the indirect fiscal consequences of a smaller economy.”