'Brexit dividend' for health service a myth, government's official spending watchdog confirms

The Office for Budget Responsibility, established in 2010 to provide independent forecasts for the government, confirmed that Brexit is more likely to weaken than strengthen the public finances

Ben Chu
Economics Editor
Tuesday 17 July 2018 11:50 BST
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The government’s official and independent spending watchdog has confirmed that there will be no “Brexit dividend” for the UK, despite the claims of ministers.

Theresa May said last month that the extra £20bn a year pledged to fund the health service would be partially paid for by UK money no longer being sent to the European Union.

That claim was universally slammed by economists as grossly misleading, since the government’s own projections suggest Brexit is already weakening the public finances, rather than strengthening them and that any fiscal gains from zero EU payments will be wiped out by more feeble tax revenues.

The government has also already earmarked much of those net £13.3bn-a-year EU budget payments for other major spending items such as support for farmers and science.

And on Tuesday the Office for Budget Responsibility, established in 2010 to provide authoritative and independent fiscal forecasts for the government, confirmed that no Brexit boost for the public finances is expected.

“Our provisional analysis suggests Brexit is more likely to weaken than strengthen the public finances overall,” the OBR said in its latest Fiscal Sustainability Report.

“There will be direct savings from the net contributions to the EU budget that the UK will no longer have to make, but it is unclear how much will be available after payments towards the agreed withdrawal settlement and other Brexit-related spending commitments.”

Instead, the OBR said that the unfunded £20bn extra a year health pledge (within five years) had worsened its long-term state projections for the public finances relative to its equivalent forecasts last year.

“Our projections suggest that the public finances are likely to come under significant pressure over the longer term, due to an ageing population and further upward pressure on health spending from factors such as technological advances and the rising prevalence of chronic health conditions,” it said.

Health economics specialists have warned that that the extra funds pledged by ministers may still not be enough to match rising demand pressures over the coming years.

That too was given support by the OBR on Tuesday, which estimated a £2.8bn funding gap in 2022-23.

On the overall finances over the long term, assuming no tax rises or spending cuts, the OBR said that the primary budget deficit (which excludes interest payments) was set to creep up from 0.3 per cent of GDP in 2022-23 to 8.6 per cent of in 2067-68.

This would mean public sector net debt as a share of GDP rising from 80 per cent in 2022-23 to 282.8 per cent of GDP over 50 years.

“Needless to say, in practice policy would need to change long before this date to prevent this outcome,” it said.

“Broadly speaking, the fiscal position is unsustainable if the public sector is on course to absorb an ever-growing share of national income simply to pay the interest on its accumulated debt.”

In response to the OBR’s document, the Treasury published its own analysis entitled “Managing Fiscal Risks”.

“Boosting productivity is the key to a stronger economy, a more sustainable fiscal position and, crucially, a better quality of life for everyone,” wrote the chancellor, Philip Hammond.

“That is why we are building a globally competitive economy through our modern Industrial Strategy, increasing public investment to its highest sustained level in over 40 years through the £31bn National Productivity Investment Fund, and equipping our workforce for the high-skilled, high-wage jobs of the future.”

He also cited specific steps such as reforming the tax system and raising the pension age. The document does not, however, mention specific tax rises to pay for the promised NHS funding increase.

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