A team of leading economists has stepped into the Cabinet row over public spending, pointing out that Brexit will trigger a cash bonanza for the Exchequer rising to £65 billion a year by the end of the next decade.
They say that ministerial infighting over how to pay for the planned £20 billion a year boost for the NHS and big increases in defence and police budgets is “foolish and ill-informed” because it fails to take into account the boost to the economy that will kick in once Britain throws off the shackles of EU membership.
Threats by the Chancellor Philip Hammond of tax rises to pay for Theresa May’s promise of an extra £20 billion for the NHS are without foundation, the economists say. In fact, he will have enough money over the next 10-15 years to cover this commitment while meeting demands from Defence Secretary Gavin Williamson for a major uplift in defence spending and from Home Secretary Sajid Javid for many more police.
At the same time, the economists say, far from raising taxes, the Chancellor will be able to reduce them over time, easing the burden on hard-pressed families.
The intervention comes from Economists for Free Trade (EFT), who have reconfirmed their analysis of the medium term tax and spending outlook for the UK economy, which they first produced before the Budget in November.
EFT flatly rejects Whitehall forecasts that Brexit will hit the economy – a hangover from the Treasury’s Project Fear exercise during the 2016 referendum on EU membership, which proved spectacularly inaccurate.
Professor Patrick Minford, chairman of EFT, said: “There is a large Brexit dividend coming down the line because of the positive effects of Brexit on the economy, quite contrary to the absurd projections made, on totally misleading assumptions, by the leaked Cross-Whitehall Civil Service report.”
Professor Minford was backed by Jacob Rees-Mogg, chairman of the 60-strong European Research Group of pro-Brexit Conservative MPs. Mr Rees-Mogg said: “The gloom-laden, almost crepuscular Treasury and its friends need not fret over Brexit or its desire to raise taxes.
“The EFT study shows quite clearly that the boost to the economy from a clean Brexit will enable the virtuous circle of higher spending on priority areas, such as the NHS, while enabling the Chancellor to cut taxes rather than raise them. Nigel Lawson achieved this when he was Chancellor and it could be done again.”
Professor Minford added: “Brexit stands to create global free trade for the UK leading to lower consumer prices, increased productivity, greater innovation, and huge improvements in our regulatory systems, besides control of unskilled immigration and the return of the money we send to Brussels. Between them these will add 7 per cent (£140 billion) to our GDP over the next decade and a half, or 0.5 per cent faster growth on average each year.
“They will raise Treasury revenues by about 10 per cent. When these extra revenues are factored in to the baseline Budget projections under which the debt/GDP ratio is already falling steadily, EFT find that the Government can responsibly meet its fiscal target of paying down public debt to a safe 60 per cent of GDP by the mid-2020s; and also find an extra £25 billion a year from 2020 to spend or cut taxes, followed by a further £40 billion a year from 2025.
“So the current wrangles between spending ministers are foolish and ill-informed, and badly misled by civil service anti-Brexit propaganda. £20 billion extra on the NHS can comfortably be funded in the post-Brexit environment; and in addition tax cuts and further necessary spending is feasible over the next decade without endangering responsible fiscal policies.”
Click here to read EFT’s Budget for Brexit Update.