It’s Time to Apply a Thaw to Austerity Ahead of a Brexit Freeze

A friend left the UK last Monday when the climate was chilly but calm and returned on Saturday to a similar environment. In between were five days of snowfall that brought chaos to large parts of the country, an event she missed entirely.

Like her, now that the snow has gone, many people may wonder briefly what went wrong and move on. Sadly, this ignores the fact that the stranded motorists, road casualities, deaths among the street homeless, and the thousands of employees unable to get to the office or factory. The UK was clearly hampered by a lack of preparedness and investment to prepare for a predictable — and predicted — event.

If there is any value from this event, it should be the reminder that Britain is woefully unprepared for the economic deep freeze that will be delivered if, as looks increasingly likely, Britain crashes out of the European Union without a deal or with a “hard” Brexit arrangement that sees the UK left trading with the EU on WTO rules.

Two comparisons immediately leap out between the snow and slow-go negotiations. The first is the Government is failing to prepare people psychologically for what may happen. Given that much of the rhetoric from Foreign Secretary Boris Johnson and International Trade Secretary Liam Fox has been about the “national success” of a post-Brexit future and the imminent signing of scores of trade deals, such complacency should be no surprise.

But while Theresa May continues to draw red lines in front of a customs union, membership of the single market, and the role of the European Court of Justice, business groups are pleading for signs that the Government is preparing. May’s latest speech appeared to compromise on areas where the UK would accept EU regulation but that seems unlikely to go down well in Brussels, leaving business still uncertain.

many people who voted Leave did so as a protest against high levels of inequality and poverty

But even more important is the lack of any sign of actual action and investment to ensure that the UK thrives post-Brexit. Despite much talk of analysis and research being done across Whitehall, only after MPs fought to get hold of the results did it emerge that the impact papers did not exist. Subsequent leaked analysis showed that at least civil servants were aware of the potentially devasting consequences.

It is not late for the Government to take action and, ironically, the answer lies in the so-called “success” of the austerity programme put in place in 2010 by former Chancellor George Osborne that many commentators have blamed for underpinning the Leave vote in June 2016.

Two years behind schedule and £14 billion of cuts to public services later, the UK elimination of the deficit on Britain’s current budget — day-to-day spending on items such as the NHS, housing, education and local government. The impact of the spending cuts was worst in Yorkshire & Humber, the North East, and North East — areas that voted heavily for Brexit — according to government figures. The London School of Economics has shown that many people who voted Leave did so as a protest against high levels of inequality and poverty. The fact that Brexit will make them poorer yet is one of the bitterest ironies.

Yet the balancing of the budget gives an opportunity to Chancellor Philip Hammond to use next week’s Spring Statement, the last fiscal event before the crunch time in Brexit negotiations, to invest in cash-starved public services.

Hammond appears to have ruled this out. This is a big mistake: as one of the moderate members of the Cabinet who has consistently argued for a soft Brexit, he has an ideal opportunity to show that ministers care about the people who were left behind during the liberalisation and globalisation since the 1980s.

Thanks to strong revenues in January borrowing may be as much as £10 billion less than forecast. If the Treasury can see the economy heading for a post-Brexit deep freeze, now is the time to thaw austerity’s icy grip.

 

 

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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