From Project Fear to Project Fantasy

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Last week, the Brexit camp rolled out another of their tabloid friendly slogans, why don’t we take the £350 million a week we spend on being an EU member and give it to the NHS? This unfortunately is an excellent example of just how divorced from reality anything we hear from the Leave camp is.

For starters, the BBC (who have recently been criticised for being overly negative about the EU in a recent study)  points out the true figure is closer to between £276m to £161m, depending on whether the Leave camp are admitting that farm subsidies will end as will much support for university funded research. Also, like Norway, the UK would have to pay some sort of fee for being a member of a the European Free trade Area. This currently costs the Norwegians about 82% per capita what it costs the UK (although its previously been suggested the UK would be paying 94% of what it currently pays for such arrangements). So that implies you could divert around £32 million a day (at most), or about 1.6 billion a year more to the NHS…about 1.7% of the NHS budget at present rates.

So at least we’ll make some sort of a saving? Right? Well actually, no, that’s only if we assume tax revenues stay the same. The current UK tax take is around £600 billion, so a fall of just 0.5% in tax revenue post-Brexit would wipe out this “gain” and leave the NHS considerably worse off. Indeed a recent Treasury report suggested that the UK tax take could fall by as much as 6% post Brexit.

This would create a hole of £36.4 billion in the UK’s balance sheet. And on top of this would be the £56 billion hole Osborne’s being trying to hide, leaving the UK with an annual deficit of £92 billion, or about 14% of current spending. Note that this would exceed the level of deficit that Greece experienced when it got into trouble (a mere 12.7% at worst).

To be clear, this £36-92 billion budget hole is not the one off costs of Brexit, those will run into the hundreds of billions. This is the year on year deficit the Treasury will have to cope with post-Brexit, after everything has settled down. And we’re assuming no mad rush for the exit by corporations, no banking collapse and no messy breakup of the UK due to a second Scottish vote. In short, we’re assuming as good a scenario as the Leave camp will get and yet they’ll still be worse off.

And plunging this hole will be a big ask. All the easy to make (or easy to hide) cuts have already been made. Any further cuts will mean cutting back on fundamental public services that are currently ring fenced. And I mean going after things like the free TV licences, winter fuel allowances, perhaps even reneging on current pension commitments (e.g. means testing for the old age pension) or significant cut backs to NHS services (perhaps charging for certain NHS services, or again perhaps means testing for them). And far from tinkering with working tax credits, they’d likely have to go altogether.

To be clear I’m not calling for such things, I’m merely pointing out the sort of painful measures that would have to be taken to plug this big a budget deficit. I’d prefer tax rises instead of cuts (of course I’d prefer not to leave the EU and thus not to have to choose!). But it will take more than simply “taxing the rich” to solve this big a problem. Cracking down on non-doms and tax havens, higher rates of tax for higher earners are all good ideas, but it simply won’t be enough to fill a hole that big in the budget. No, in conjunction with such measures all taxes would have to rise, income tax, VAT, council tax, etc. Of course that will push up inflation, drive up salaries and mean anyone on a fixed budget (such as pensioners planning to vote for Brexit) will be much worse off.

In short, the reality is that voting for Brexit will fundamentally alter the UK economy. The consequences of which will be felt hardest by the very sorts of people most likely to vote for Brexit. I would only recommend voting leave if you don’t plan on getting sick anytime soon or retiring….ever!

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6 thoughts on “From Project Fear to Project Fantasy

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