Brexit could enable the Government to boost the economy by £65 billion a year through tax cuts and spending increases, according to a major new report to be launched next week.
In a key intervention just a week before the Chancellor delivers his 2017 Budget, Economists for Free Trade will unveil their ‘Budget for Brexit’ report, which says that quitting the EU will reinvigorate the British economy, creating a flood of extra revenue for the Exchequer that can be used to cut taxes, boost state spending and slash the national debt.
It comes as the Office for Budget Responsibility reveals that the UK tax burden, at over one third of national income, is about to hit its highest level for nearly 50 years – 1970, when Labour’s Harold Wilson was in power.
At a high profile event in Westminster on Tuesday, the sixteen-strong Economists for Free Trade group will forecast that – assuming Brexit occurs in the third quarter of 2020 – growth will improve as costs fall, unemployment (which is already extremely low) will fall further, real wages will rise as firms demand more labour given higher profits, and higher output will drive down the exchange rate as new markets are sought by exporters.
The economic report – the first real blueprint of its kind since the referendum – rejects gloomy forecasts from the Treasury and the Office of Budget Responsibility (OBR). The report says: “it is certain that the OBR will not make the positive assessment of Brexit that we have made……it would seem that they, like the Treasury today, do not question the analysis of a clean Brexit made by the Treasury during the referendum, which asserted that the long run effects would be substantially negative and the short run effects would be a recession.”
The promise of a big fiscal boost to the UK economy over the next decade, as a result of Brexit, is based on a new forecast of the country’s economic outlook, which factors in long-run gains such as a fall in prices because of the scrapping of the EU tariff wall on goods from the rest of the world, improved export performance, an end to the annual EU subscription of £10 billion and less red tape for business. The effect of all this is to push growth up to nearly 3 per cent per annum by the mid 2020s.
Over the first half of the 2020s, state borrowing moves into surplus and the accumulated national debt starts falling. The surplus reaches £40 billion a year by 2025, rising to around £90 billion by the end of the decade.
The EfT forecasts that the Chancellor could prudently give away an extra £25 billion a year over 2020-2025 – in lower taxes and/or higher spending – and still pay down debt. From 2025 onwards he would have an extra £40 billion to play with, making the total fiscal headroom around £65 billion a year.
The Budget for Brexit exercise has been led by Professor Patrick Minford, Chair of EfT and a former adviser to Margaret Thatcher. Professor Minford has a long track record of standing out against the conventional wisdom of professional economists and being proved right – as he was over the supply-side revolution of the Thatcher era and in his opposition to the UK’s doomed entry into the ERM and joining the euro, now widely seen as having wrecked the economies of much of Europe.
To illustrate the scale of the potential tax cut dividend from Brexit, the report says that It would cost just £12 billion by 2025 to reduce corporation tax by 2 per cent, the higher rate of income tax by 2 per cent and the additional rate by 7 per cent. This would leave about another £13 billion to play with, which could be used to ease the strains on public spending by, for instance, giving a boost to the NHS.
With an extra £40 billion of revenue resulting from fast post-Brexit growth after 2025, the report calculates that corporation tax could be cut by a further 3 per cent, the higher rate of tax by another 2 per cent and the standard rate by 2 per cent. This would cost around £20 billion, leaving a further £20 billion to raise public spending while keeping debt at a prudent level of below 60 per cent of national output.
Speaking ahead of the event, Professor Patrick Minford said:
“When Britain leaves the EU in March 2019 it is essential that the right policies are in place to ensure our economy thrives and seizes the economic opportunities of Brexit.
“The Chancellor and the Treasury play a central role in this and must show ambition and leadership.
“Regrettably, since before the referendum, the Treasury and the OBR have been consistently negative about a post-Brexit economy.
“The Chancellor must use this Budget to set out a positive vision of a Britain thriving outside the EU.
“We have set out a Budget for Brexit that would provide huge tax cuts for hard working people and cuts to corporation tax, while at the same time reducing the debt to GDP ratio and enabling spending rises.
“We urge the Chancellor to set out a Budget that will take full advantage of the opportunities Brexit brings and fully exploit these benefits to improve the lives of ordinary people.”
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