No 'Brexit dividend' for cash-strapped UK ― experts

(Simson Dawson/Reuters)

(Simson Dawson/Reuters)

Derided as economically illiterate, government claims that Britain’s withdrawal from the European Union (EU) will unleash a “Brexit dividend” are nevertheless enjoying a revival as the politically combustible process plays out.

Promising a shot in the arm for Britain’s much-loved National Health Service, Prime Minister Theresa May this week said the extra spending would be financed in part by savings once Britain exits the EU.

That assertion — in essence, vote for withdrawal to save the beleaguered NHS — was the notorious selling point emblazoned on the pro-Brexit camp’s campaign bus prior to Britain’s June 2016 EU referendum.

Neutral observers and opponents to Brexit said the claim was divorced from financial reality. They have reiterated the point in response to May’s promise of an extra £20-billion ($26-billion) for the NHS, made Monday at the start of a crunch week of votes that will dictate parliament’s role in determining the final shape of Brexit.

“Her figures are so dodgy, they belong on the side of a bus,” opposition Labour leader Jeremy Corbyn said during a robust exchange in parliament with May on Wednesday.

The prime minister, however, doubled down in riposte to Corbyn, promising about £600-million a week extra for the NHS as a result of her policies.

“That will partly be funded by the money we no longer spend on the European Union,” she stated.

Yet the government’s own forecasts predict an economic slowdown, lower tax receipts and higher inflation linked to Brexit, and a shortfall in spending coming from Brussels on areas like farming will need to be plugged by London.
So any savings would be wiped out, analysts argue.

“In the long run, lower growth just trumps whatever accounting gains you get from stopping EU contributions,” Fabrice Montagne, chief UK and senior European economist at Barclays, told AFP.

Less is not more

Since the referendum, according to official data, economic growth has slowed to a snail’s pace, inflation is high and hitting household incomes, while many businesses are holding back on investment.

That amounts to a major dent in the government’s tax take, one that is set to endure for years.

“There is no Brexit dividend,” Paul Johnson, director of the respected Institute for Fiscal Studies (IFS), tweeted.

Speaking on the BBC, he added: “There is literally, arithmetically, no money.”

The Office for Budget Responsibility (OBR), the government’s official economic forecaster, says the Brexit vote will hit public finances to the tune of £15-billion in 2020–21.

“This outweighs the UK’s net contribution to the EU by a substantial margin, and means less, rather than more money for the NHS and other services,” IFS economists said in a report.

They noted also that the government has promised to maintain its current contributions to the EU budget as part of a divorce settlement ― calculated by the OBR at £37.1-billion ― for the coming years.

Britain could remain in hock to the EU budget until at least 2023 under longer transitional arrangements floated by the government to avoid an abrupt departure from the bloc’s customs union. Such a “hard Brexit” would require the politically unpalatable re-imposition of a border between the Republic of Ireland and Northern Ireland which is part of the UK.

So, if there is little or no Brexit dividend, the extra money will have to come from higher taxes or borrowing, undermining the politics of the case for withdrawal.

In parliament, May declined on Wednesday to spell out how the additional funding would be raised if the experts are right and Brexit fails to deliver significant savings.

But Foreign Secretary Boris Johnson, one of the architects of the successful Brexit campaign, said May’s announcement was a “down payment on the cash we will soon get back from our EU payments” as he tweeted the hashtags #BrexitDividend and #TakeBackControl.

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