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OBR pins £59bn of ballooning borrowing on Brexit

OBR pins £59bn of ballooning borrowing on Brexit

by Daniel Grote Nov 23, 2016 at 16:15

Brexit will cost the government £58.7 billion over the next five years, figures from the Office for Budget Responsibility (OBR) have suggested, in analysis which lays the bulk of £122 billion in new borrowing announced in the Autumn Statement at the door of the 'no' vote.

The OBR has dramatically raised borrowing forecasts and cut growth estimates from its previous predictions, delivered alongside last year's Budget and predicated on the UK voting to remain in the European Union.

But it has also published forecasts for government borrowing had 'remain' prevailed in the EU referendum. These would have shown higher borrowing levels than its estimates at the time of the Budget, albeit not by the same degree as today's figures.

Borrowing would have hit £63.8 billion next year rather than £55.5 million and £46.5 billion in 2018 compared with March's £38.8 billion. The government would have delivered a budget surplus in 2020 in line with former chancellor George Osborne's pledge, although the £1.1 billion estimate gives much less wriggle-room than the £10.4 billion forecast alongside the Budget.

Those borrowing rises pale in comparison to the £122 billion of extra borrowing announced in the Autumn Statement as, according to the OBR, £58.7 billion of that is related to the UK leaving the EU.

The OBR outlined a series of Brexit-related factors driving this higher borrowing. The biggest of these, lower productivity growth, accounts for £18.1 billion of extra borrowing.

'This feeds through to weaker growth in earnings, profits and consumer spending, all of which reduce receipts. But it also feeds through to weaker growth in business investment, which boosts receipts by reducing the use of capital allowances,' the OBR said.

Almost as big a hit comes from lower migration. Had the UK voted to stay within the EU, the OBR would have revised up migration estimates, helping to boost the economy and reduce government borrowing. But it has now kept migration estimates at the same level it was predicting in March, adding £18.1 billion of borrowing over the next five years.

The OBR said its estimates should be treated as 'illustrative' but that it wanted to show the impact of the 'leave' vote on its forecasts.

'It is reasonable that people should ask: what difference has the decision to leave the EU made to your fiscal forecast?' it said.

'To answer the question requires us to distinguish after the event between roughly what the forecast might have looked like in the absence of the referendum result and the forecast we have actually published.'

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Comments  (6)

  • Jon: 

    But what the OBR has ignored is:

    1. The lower pound will mean fewer imports and more exports which will boost the GDP and also the underlying prosperity of the UK

    2. With lower migration then perhaps more native UK people will get jobs, especially as home "production" replaces some imports. Furthermore, with a lower net migration the GDP per head will be improved, and that is far more relevant than just GDP.

    3. The extra spending on infrastructure will boost GDP at the expense of increased government borrowing.

    The drop in Sterling had to come at some stage as the UK has been importing far more than it is exporting for the last 25 years. If Brexit brought foreign exchange dealers to their senses, then it has been a welcome move as the party could not go on. This is a direct equivalent to the internal borrowing excesses of the financial crisis, so the correction now will avoid greater pain in the future.

    08:53 on 24 November 2016

  • Abstract Artist: 

    Agreed Jon. More negative nonsense, factoring in what they see as bad and ignoring any and all possible benefits.

    How can anybody take any of these predictions seriously seeing as they are always so way off the mark even with short term forecasts?

    09:56 on 24 November 2016

  • Drake: 

    Dream on, you're not even considering the higher cost of imported raw products, rampant inflation, consequent interest rate hikes, loss of AAA status, huge cost of borrowing on £2 trillion, etc etc. That's even before Brexit, when we can look forward to operating in a WTO tariff world. If anything the OBR is being highly optimistic. UK plc is f...ed. Thanks a lot, Brexiteers, you're all living in cloud cuckooland.

    11:35 on 24 November 2016

  • Jon: 

    Drake - I agree that the rot had set in well before Brexit, but a blind eye was turned by politicians and "expert" economists. The UK was not paying its way in the world which cannot go on indefinitely, which has caused the fall in sterling, rising import costs, and probable increases in interest rates. But the remainers blame Brexit rather than facing the hard economic facts. At least we can now move towards a sustainable economy which is evidenced by our improving trade balance, although there is some way to go.

    So there is no dreaming here - just facing up to the facts. The GDP has been rising as a result of increased borrowing and investment from overseas - not by wealth creation. In fact our wealth is falling as more and more of our assets are now owned by overseas entities. Even 56% of shares quoted on the London Stock Exchange are not owned by those in the UK !!

    14:24 on 24 November 2016

  • Jeffrey Baxendale: 

    "our wealth is falling as more and more of our assets are now owned by overseas entities. Even 56% of shares quoted on the London Stock Exchange are not owned by those in the UK !!"

    A lower GBpound will simply make that situation worse.

    Obviously, post referendum, we can only make the best of what we have. What do we have?

    Right now I am kicking myself for not having emigrated 20 years ago, before I got married.

    09:46 on 25 November 2016

  • Drake: 

    Jon and Jeffrey,

    First, let me say how refreshing it is to have such courteous responses. I am normally greeted with various degrees of abuse if I dare to point out that Brexit is not looking too good at the moment. We all have a stake in the UK being a success for all our citizens and if there is any merit in Brexit it might be that the politicians will start to realise some of the things we are doing wrong. Will they? We don’t educate our people well enough and the resources are concentrated in the private sector. Our best universities have been very successful, but their future is now seriously threatened by Brexit. As to the economy, we have been a basket case since the financial crisis in 2008 and even before then we had far too much borrowing, both public and private. We are now on a knife edge and I really can’t see how we can sustain borrowings rising to £2 trillion next year. Each percentage interest rise would mean an extra £20 billion per year. I think the EU are going to be quite vindictive and will give us no kind of a deal. They have been wound up, first by the braying Farage and now by Johnson, Davis and May, who do not appear to understand that the Europeans do not appreciate being mocked or talked down to. We have a class ridden society riven by religious intolerance and segregation (consider the whole concept of faith schools) and we have an increasing divide between the haves and have nots, and between north and south. I can’t see how Scotland can be retained in the UK, Ireland and Wales cannot be far behind in going their own way. On trade agreements, the world is becoming more protectionist, so we may get quite a shock when we come to strike trade deals with countries who do not want their own jobs to be threatened (USA) or insist on mutual freedom of movement of people (India) or are just not interested any more since we last ditched them (Australia and NZ). Not all of this is caused by Brexit, but there is no doubt in my mind that Brexit makes none of it any easier.

    13:33 on 25 November 2016

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