Politicians must not give in to the cynical tactics of Project Fear
As a former Chancellor, I am no stranger to Treasury forecasts. My most famous (or infamous) prediction came in the autumn of 1991 with the economy in the grip of a recession. Despite the metaphorical frost on the ground, I detected the “green shoots of recovery”.
I was much maligned at the time, but within a year sustained growth had resumed and by 1997 we were able to bequeath to Tony Blair a golden inheritance of growth and sound public finances.
Today’s Treasury has little time for green shoots – it sees a blackened wasteland in assessing the impact of the biggest shift in UK policy for decades.
During the referendum campaign of 2016, highlights (or lowlights) of the Treasury crystal ball, all to follow immediately after a vote to Leave, included the following: the average British household would be £4,300 a year worse off; a year-long recession with an immediate drop of 3-6 per cent of national output; a punishment Budget featuring tax rises and spending cuts to fill a black hole in the public finances.
Scary stuff, but 17.4 million people ignored the prophets of doom and voted to take back control of the nation’s destiny. Fast forward to today, and I suspect we are heading for a replay of what we have come to know as Project Fear.
First, it is worth pointing out that none of the Treasury forecasts came anywhere near the truth. Since those forecasts, the average British family has remained just as well off and the UK economy has grown 3.9 per cent. There has been no recession, and taxes have been cut and spending increased.
The Prime Minister is in the process of trying to sell her negotiated deal to Cabinet and Party. It deserves to get a fair hearing and I personally will study it carefully. But I can almost hear the knives being sharpened for Project Fear Mark 2 – a spine-chilling vision of what will befall poor old Blighty if Parliament decides it does not like the deal and thus is pointing towards to a No Deal exit next spring.
Already we have had a taste of things to come if we leave the EU without a deal. Stories of lorries backed up all the way from Dover to London; food and medicine shortages; planes grounded and trade with the Continent all but snuffed out.
No doubt, ministers and their officials will serve up plenty more of the same. Foreign holidays rationed, visas for visiting France, ex-pats being sent packing, labour shortages in our hospital wards and clinics. No more Polish plumbers or Swedish au pairs.
The actual economics won’t bear thinking about as Britain “crashes out” of the EU and tumbles over a “cliff edge” – two BBC favourites, those. We know this because earlier this year, the Treasury partly leaked its “Cross-Whitehall Brexit Analysis”.
It predicted a huge 7.7 per cent of GDP hit to the economy in the event of an exit on World Trade Organisation terms (so-called No Deal, which I think is more accurately described as a World Trade Deal). As for an exit with a Canada Plus deal, that would still impose pain, to the tune of a 4.8 per cent hit.
Needless to say, the Treasury has refused to publish and debate details of its economic model or the assumptions it contains.
My advice is to keep calm and carry on. The Treasury and their acolytes were laughably wrong last time. They have cried wolf too often to be believed today – either by Conservative MPs or the public.
And, of course, the Treasury does not have a monopoly on forecasting. Economists for Free Trade have also done their modelling and come up with very different outcomes, envisaging that the public finances would be £80 billion a year stronger over 15 years if we embraced a World Trade Deal. Other independent bodies have not corroborated the Treasury gloom.
So, don’t fall for any new salvo of official propaganda about the impact of an exit under WTO rules, the so called No Deal scenario. We have to consider with an open mind the PM’s proposals, but if in the end they cannot get through Parliament we cannot rule out No Deal.
It has never been my own first choice, but with proper preparation there is no need for panic. Our economic future lies in our own hands and depends on the policies we choose to follow much more so than in any trade deal.
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