In tomorrow’s New Statesman, I interview Robert Chote, the chair of the Office for Budget Responsibility. Since its creation by George Osborne in 2010, the independent OBR has been charged with producing economic forecasts and scrutinising government policy. In our conversation, Chote, who was director of the Institute for Fiscal Studies from 2002-10, did not refrain from stating some uncomfortable truths for the Conservatives.
On the UK economy: “Weak and stable, rather than strong and stable”
Chote characterised the British economy as “weak and stable, rather than strong and stable” (in reference to the Tories’ ill-fated election slogan). Though GDP has continued to grow, it has fared poorly “by the standard of past recoveries”. And Chote warned: “There’s an evens chance of a recession in any five-year period if you look back at the historical experience. We’ve not abolished boom and bust”.
In its last set of forecasts (November 2017), the OBR dramatically downgraded expected productivity growth. And though productivity has since risen at its fastest rate for six years, Chote sounded a cautionary note: “These are noisy numbers, they go up and down and we’ve had false dawns before”.
John McDonnell, the shadow chancellor, said in response to Chote’s comments: “This is an extremely damning indictment of the last seven years of Tory economic policy from one of the most senior economists in the country.
“It is another nail in the coffin for this government’s economic credibility when the head of the independent watchdog whose job is to monitor our public finances is admitting that the central economic policy since 2010 is harming growth.”
“He further confirms that more infrastructure spending, as Labour has consistently called for, would instead help economic growth; and that the Chancellor is not doing all he can do to support our economy.
“The next Labour government will end austerity, and provide the serious investment our country needs, underpinned by our Fiscal Credibility Rule, to build a high wage, high skill economy for the many, not the few.”
On how Brexit has harmed growth
Chote, who was chairman of the Social Democratic Party association at Cambridge University (and stood for the Liberal merger as a county council candidate in 1989), did not tell me how he voted in the EU referendum (“It’s a secret ballot, I shall respect it”). But he did tell me that the Brexit vote had harmed economic growth: “In terms of the net effect on GDP, the hits to demand have outweighed the boosts”. (Following the referendum, the OBR forecast that the Leave vote would cost the UK £15.2bn, or nearly £300m a week, by 2020/21.)
Chote also cited “most of the work that trade economists have done” as showing that the costs of leaving the single market and the customs union are greater than the benefits. “The reduction in openness likely with the EU is likely to outweigh any increase elsewhere”.
Senior Labour MP Chuka Umunna of pro-EU campaign Open Britain said in response: “This is a devastating blow to the credibility of the government’s case for taking us out of the single market and customs union.
“Robert Chote, the man the government rely on for an independent assessment of its economic policies could not be more clear. Any theoretical gains that might come from Brexit will be more than dwarfed by the loss of trade with the European Union that a hard Brexit will cause. If ministers have evidence to the contrary they have never revealed it in public.
“Britain needs to stay in the single market and customs union and ministers need to abandon their ideological support for a reckless hard Brexit.”
On how austerity has harmed growth
Chote, a constituent of Jeremy Corbyn, further warned that austerity, in the form of public spending cuts, was still harming growth: “Growth’s a bit weaker over the next couple of years than it is in subsequent years and that’s partly because spending cuts are still intensifying”.
And he said that higher infrastructure investment (as promised by Labour) was the best means of stimulating growth. “Infrastructure spending has the largest direct effect. That’s basically because less of the spending leaks out into savings or imports”. Even under the government’s fiscal rules, he noted, “there is room for spending more, there is some room for fiscal giveaway that would still be consistent with those targets”.
On the costs of reduced immigration
A permanent reduction in immigration (as promised by the Tories) would increase the national debt, Chote warned. “Net inward migration tends to be a net positive for the public finances because inward migrants are generally more likely to be of working age than the native population.”
The full interview appears in tomorrow’s New Statesman