A shadow has been cast over Brexit Britain as the country faces a £122 billion budget black hole, dwindling growth, slow trade, lower pay and austerity stretching into the late 2020s.
The grim picture was painted by the UK’s official forecaster, whose predictions laid bare Britain’s daunting challenge as it tears itself away from Europe.
In particular the Office for Budget Responsibility set out how Brexit was driving the UK’s public finances deep into the red, with a key factor being the cost of losing valuable foreign workers following a divisive referendum campaign.
The sobering outlook led to an immediate row with Brexiteers, who accused the OBR of being too pessimistic about the UK’s future.
Chancellor Philip Hammond delivered a workmanlike Autumn Statement from the floor of the House of Commons in a bid to steady the country’s nerves, but even he highlighted an “urgent need” to address the difficulties ahead.
He promised help for the “just about managing” group Theresa May has dedicated her administration to – a higher minimum wage, help on housing, saving and fuel costs and investment in road, rail and digital infrastructure – and said he would save money, reining in salary sacrifice schemes and hiking insurance premium tax.
But even as he sought to underline what he called the “fundamental strengths” of the British economy, he said there was no escaping the fact that quitting the EU was “a decision that also makes more urgent than ever the need to tackle our economy’s long-term weaknesses”.
He told MPs: “While the OBR is clear that it cannot predict the deal the UK will strike with the EU, its current view is that the referendum decision means that potential growth over the forecast period is 2.4 percentage points lower than would otherwise have been the case.”
Compared with figures the OBR released in March, the body now predicts the UK will have to borrow an extra £122 billion over the next five years.
Almost half of that – some £58.7 billion – is directly related to the vote to leave the EU, the forecaster said. Some £16 billion was the cost of lost income due to falling migration.
Ms May could push up the cost of losing overseas workers even further by pursuing her target of pushing net migration down to the “tens of thousands”, the forecaster said.
The prediction follows an acrimonious referendum campaign that focused negatively on migration, including the infamous “breaking point” poster, leading politicians suggesting foreigners are taking British people’s jobs and a wave of hate crime against overseas nationals.
With government finances faltering, Mr Hammond and Ms May have already ditched former Chancellor George Osborne’s plan to abolish the deficit by 2020, though they are still committed to doing so in the next Parliament.
But the OBR claimed the Chancellor could easily fail to balance the books by as late as 2025, meaning further potential spending cuts and tax rises for the next decade.
Despite claims from key figures in the Leave campaign that Britain will shed its EU membership and become a “great trading nation” to solve its economic problems, the OBR predicted a decade of sluggish imports and exports, stymied by drawn-out trade negotiations.
Mr Hammond said the minimum wage for over-25s would rise by 4 per cent from £7.20 to £7.50 in April 2017. It is a smaller rise than had been predicted earlier in the year, but would still mean a pay rise worth more than £500 a year to a full-time worker.
But the OBR painted a less positive picture for wage growth in the medium term, estimating that real average earnings in 2021 would be 3.6 per cent lower than expected in March – still below the UK’s pre-recession peak 13 years later.
The Resolution Foundation think tank argued that help given by Mr Hammond, such as a plan to ease the pain of cuts to the Universal Credit benefit, barely offset other cuts less well-off households still face.
Shadow Chancellor John McDonnell told the Commons: “Today we've seen the very people the Prime Minister promised to champion, betrayed.
“The Chancellor has failed to break with the economic strategy of austerity. The country remains unprepared and ill-equipped to meet the challenges of Brexit and secure Britain's future as a world-leading economy.
“After all the sacrifices people have made over the last six years, I fear today's statement has laid the foundations for more wasted years.”
The sombre tone set by Mr Hammond’s statement, likely to be exacerbated when the Institute for Fiscal Studies presents its analysis of the Autumn Statement on Thursday, angered some Tories.
Brexit backer Jacob Rees-Mogg said Remainers needed to take a “bit more of an optimistic tone”, while fellow Conservative MP John Redwood accused the OBR of pessimistic figures.
Mr Redwood added: “It is probably worth mentioning that the OBR very specifically says in its report that there is an unusually high degree of uncertainty in the forecasts it is making because of the unusual circumstances.”
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