Brexit: Economic Impact

Lord Young of Cookham Excerpts

Tuesday 18th October 2016 Lords Chamber

[Lord Hannay of Chiswick]

To ask Her Majesty’s Government whether they stand behind the forecasts for the shortfall in the United Kingdom’s economic growth as a result of Brexit set out in HM Treasury Analysis: The long-term economic impact of EU membership and the alternatives, published in April.

[Lord Young of Cookham (Con)]

My Lords, as the Chancellor has said, there will be some adjustment and uncertainty in the economy from the referendum decision. The progress and outcome of the negotiations will determine its nature, but we shall be pushing for the best possible deal for the United Kingdom. We are well placed to take advantage of the opportunities from Brexit and, as the Prime Minister has said, there is optimism about the future.

[Lord Hannay of Chiswick (CB)]

My Lords, I thank the noble Lord for that reply, which I categorise as somewhere between equivocal and evasive. I asked him whether the Treasury stood by certain figures. Will he recognise that these figures showed a loss of GDP of 3.8% in the event of our leaving the European Union and having a single market outcome; of 6.2% if we merely had a free trade agreement; and of 7.5% if we fell back on the default option of WTO membership? Those are significant figures with significant gaps between them. Is it not about time that the Government told us a bit more about them and identified the impact on individual sectors of the economy, some of which, allowing for the nature of all averages, will be hurt much more by these changes than others?

[Lord Young of Cookham]

I thank the noble Lord for prefacing his remarks with his customary diplomacy. It is important to recall exactly what the Treasury analysis did. It took as a baseline continued membership of the EU, and then tried to predict the impact on GDP of three scenarios: first, the Norway solution or EEA; secondly, the Canada option; and thirdly, the WTO option. The Government have subsequently made it clear that they are going not for any of those three options but for a bespoke option which will not necessarily parallel any of those. For that reason, there is no particular advantage in updating the analysis that the noble Lord referred to. As for what he said about sectors, that is an important issue, and work is going on in government departments on the impact of Brexit on particular sectors of the economy.

[Lord Lawson of Blaby (Con)]

My Lords, I commend my noble friend for dismissing this earlier projection or model. Is he aware that it is regarded as completely useless for two reasons? One is that it takes no account of the other economic dimensions besides trade—there are many—and the other is that it is a so-called gravity model, designed for geographers. All reputable economists regard it as completely useless because it contains, among other things, no prices.

[Lord Young of Cookham]

I am grateful to my noble friend for his support to the extent that he suggests there would be no great advantage in redoing this exercise. One of the things this exercise did not do was take into account any intervention by the Bank of England or Government after the decision. Since then we have seen monetary initiatives by the Bank of England, and the Chancellor has made it clear that in his Autumn Statement he is minded to take measures to protect the economy. For those reasons, there is no particular advantage in updating the forecast—which was not out of line with other forecasts made at the time.

[Lord Davies of Oldham (Lab)]

My Lords, does it not become apparent that, with yet another wave of the ministerial hand, the Osborne legacy is being swept away and the Government are treading down paths they are unprepared to define? The Minister will have noticed that apart from the noble Lord, Lord Lawson, who can scarcely be defined as an independent voice, the two voices that have been expressed from this House with some force in recent weeks have been those of the noble Lords, Lord Hannay and Lord Kerr, both of whom have a vast amount of insight into the European Community and should be listened to carefully. Can we get one thing from the Government? I know they are prepared to say very little about what is meant to develop over the next few months and years, but can we get from them a commitment to the single market? Are all analysts not absolutely clear that abandoning the single market will be detrimental to livelihoods, to jobs and to public services? Therefore, should the Minister not at least say that the Government are seeking to protect, as far as they can, British membership of the single market?

[Lord Young of Cookham]

I had hoped to get through this exchange without saying the Government do not provide a running commentary on negotiations. However, the noble Lord has not just asked for a running commentary but asked me to predict the result. The answer is no, I cannot give any of those commitments, apart from the one he asked about at the end. We will of course use our best endeavours to secure access for goods and services from the UK into the European Union.

[Baroness Kramer (LD)]

My Lords, in the 2015 Budget, the Government froze in cash terms most working-age tax credits and benefits. With the rise in inflation that has occurred so far, as reported today, and the very significant rise that is anticipated thanks to the collapse in sterling, will the Government be unfreezing them, so that benefits can increase on the basis of inflation, or are the low-paid to be the first victims of the Brexit decision?

[Lord Young of Cookham]

I understand the concern that the noble Baroness has expressed about the impact of inflation of those on low incomes, but she would not expect me to say anything that might anticipate what is in the Autumn Statement.

[Lord Tebbit (Con)]

My Lords, what happened to the emergency Budget which the dodgy dossier, to which the noble Lord, Lord Hannay, referred, said would be needed immediately if the electorate were so unwise as to vote for Brexit? What has happened to it? Why has it not been produced?

[Lord Young of Cookham]

I say to my noble friend that this country has been through a fairly divisive referendum campaign. I do not think it of great advantage to rerun some of the issues that were ventilated. We should do all we can to bring Brexiteers and Remainers together. In a direct answer to his question, the Chancellor and the Prime Minister made it clear that they are no longer seeking a surplus in the government accounts by the end of this Parliament—that target has been postponed. Therefore, some of the imperatives that my noble friend has just referred to are not as essential as they were under the previous Chancellor.

[Baroness Symons of Vernham Dean (Lab)]

My Lords, last week a colleague of mine who sits on the board I chair told me that his company was removing its headquarters from London to Paris as a direct result of the decision to leave the European Union. Can the Minister tell us how many companies have already taken that decision, and whether, on this issue, the Government are at least keeping a running record of those decisions?

[Lord Young of Cookham]

I do not know how many companies have made that decision. I hope some of them might wait to see the outcome of the negotiations. We have seen significant investment, for example, by SoftBank, which is investing £24 billion in this country through ARM Holdings. We have seen investment by GlaxoSmithKline and we have seen Apple deciding to locate its new offices at Battersea Power Station, so it is not all one way as the noble Baroness has implied.