UK Economy: Post-Referendum Assessment

Bernard Jenkin Excerpts

Monday 23rd May 2016 Commons Chamber

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

(Urgent Question:) To ask the Chancellor of the Exchequer to set out his latest assessment of the UK economy following the result of the EU referendum, which he has published today; and if he will make a statement.

[The Financial Secretary to the Treasury (Mr David Gauke)]

Last month, the Treasury published a detailed report on the long-term impact of EU membership on our economy. Today, the Treasury has published a full assessment of the immediate impact of leaving the EU. It provides yet further evidence to support the Government’s firm belief that it is in Britain’s best interest to remain in the European Union. The analysis makes it clear that a vote to leave would cause a profound economic shock, creating instability and uncertainty that would only be compounded by the complex and interdependent negotiations that would follow. The central conclusion of the analysis is that the effect of this profound shock would be to push the UK into recession and lead to a sharp rise in unemployment.

Two scenarios have been modelled to provide analysis of the adverse impact on the economy: a shock, and a severe shock. In the shock scenario, a vote to leave would result in a year-long recession, a spike in inflation and a rise in unemployment. After two years, our economy would be about 3.6% smaller than if we remain a member. The value of the pound would fall by about 12%, house prices would sink by about 10% and unemployment would rise by about half a million, affecting people in all regions of the United Kingdom.

Under the severe shock scenario, the effects would be even starker, with GDP 6% lower than it would otherwise be, a fall of 15% in the value of sterling and unemployment up by more than 800,000. If negotiations with the EU were to take longer than two years to conclude, or if the outcome were to be less favourable than expected, the UK economy could be subject to further instability, which would depress UK economic prospects further. That would undermine the hard work of the British people in forging an economic recovery since the crash of 2008.

As I set out at the start, today’s paper forms part of the case that the Government are making that Britain will be stronger, safer and better off if we stay in the European Union. It is based on serious, evidence-based analysis, and I commend it to the House.

[Mr Speaker]

Order. In fairness to the hon. Member for Harwich and North Essex (Mr Jenkin), he is at least here, which is more than can be said for the Chancellor of the Exchequer, to whom the question was directed. It appears that, as has happened on many occasions, the Chancellor has chosen to uncork the Gauke. We will now hear from Mr Bernard Jenkin.

[Mr Jenkin]

I reflect on the fact that obesity was rather less of a crisis for the House this afternoon than I imagined it would be, Mr Speaker.

May I first say to the Minister that we all know that these forecasts are just rubbish being produced by a Government who are now obsessed with producing propaganda to try to get their way in the vote rather than enlightening the public? Has this report been signed off by the same Professor Sir Charles Bean who has previously said that models of economic shocks are based on “gross simplifications”? Will the Minister confirm that the so-called shock scenario suggests nothing more serious than that the economy will remain the same size as it was just last year? Does that not demonstrate how Ministers have become preoccupied with dishonestly talking down Britain’s economic prospects, which is highly irresponsible?

Why do the Government not agree with the chair of the remain campaign, Lord Rose? He has been reassuring in saying:

“Nothing is going to happen if we come out of Europe in the first five years…There will be absolutely no change.”

What about my right hon. Friend the Business Secretary? He said in February last year:

“As I’ve said before, a vote to leave the EU is not something I’m afraid of. I’d embrace the opportunities such a move would create and I have no doubt that, after leaving, Britain would be able to secure trade agreements not just with the EU, but with many others too”.

What does the Minister say in response to his Conservative predecessor, my noble Friend Lord Lamont? He said this morning:

“A lot of the Government’s so-called forecast depends on business confidence, which the Government is doing its best to undermine. Economists are no better than anyone else in predicting shifts in confidence…We have nothing to fear but fear itself—which the Government is doing its best to stir up.”

The Government say that wages will fall, so why did Lord Rose tell the Treasury Committee that wages would rise if we left the EU? Is this report produced by the same Treasury that failed to foresee the banking crisis and the great recession that followed?

Why do none of the Government’s post-referendum economic assessments look at the risks of remaining in the EU? Given that in 2014 the UK contributed £10 billion net to support other, failing EU economies rather than our voters’ own priorities, what effect will the continuing collapse of the eurozone economies have on the EU budget as a whole, and particularly on the UK’s net contribution?

Does not the Government’s entire campaign reinforce the unfortunate impression that today’s political leaders will say anything they think will help them get what they want, whether it is true or not? Does the Minister not realise that my right hon. Friends the Chancellor and the Prime Minister are contributing to cynicism about politics and a sense that voters should not trust their rulers but should make their own choice and judgment, which is why they will vote leave on 23 June?

[Mr Gauke]

The economy is a key issue in the debate and in the choice that the British people will make on 23 June. Today’s analysis is an attempt to assist the British people in making an informed decision, based on the likely consequences of the United Kingdom leaving the European Union. Indeed, many supporters of the leave campaign have been prepared to acknowledge that leaving the EU would at the very least have a short-term impact on our economy and create a shock.

As my hon. Friend said, the analysis produced by the Treasury has been signed off by Sir Charles Bean, the former Deputy Governor of the Bank of England and a distinguished macroeconomist. He said that

“this comprehensive analysis by HM Treasury, which employs best-practice techniques, provides reasonable estimates of the likely size of the short-term impact of a vote to leave on the UK economy.”

It is not only the UK Government who are highlighting the risks of leaving the European Union; the International Monetary Fund, the OECD, the leadership of pretty much every ally we have, business groups, and many respected independent economists have all made it clear that this country would lose out from leaving the EU. However one looks at this debate, we cannot get away from that central fact.