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26 June 2018

The Tories have trashed what’s left of their economic reputation

Boris Johnson’s “fuck business” outburst and the non-existent “Brexit dividend” destroy any claim to credibility. 

By George Eaton

For decades, one of the Conservatives’ proudest boasts has been that they are the “party of business” and of “economic credibility”. Even before Brexit, this claim stretched credulity. From 2010-15, the UK endured the largest fall in living standards of any EU country other than Greece. George Osborne continually missed his deficit targets and the UK lost its supposedly cherished AAA credit rating. Investment and exports remained stagnant, with growth dependent on rising property prices, consumer spending and financial services.

Brexit is now destroying what remains of the Tories’ economic reputation. The UK has become the slowest-growing major economy (GDP growth was a mere 0.1 per cent in the most recent quarter, the worst performance since 2012); firms have been dismayed by the government’s pledge to leave the EU customs union and the single market.

When Boris Johnson last week declared “fuck business” in response to warnings from Airbus and BMW he merely defined what has long been the Conservatives’ policy. But his words were still a gift to the Tories’ opponents. Jeremy Corbyn and John McDonnell now have a ready riposte whenever they are denounced as the “enemies of enterprise”. Labour, which has already won praise from businesses for its infrastructure and skills proposals, appears positively emollient by comparison.

Brexit is similarly torching any claim the Tories have to fiscal credibility. Theresa May boasted that her promise of £25bn more for the NHS by 2023/24 would be funded by a non-existent “Brexit dividend”.

Until the conclusion of the planned transition period (due in December 2020), the UK will continue to make EU membership payments (totalling £16bn). From 2021-28, it will contribute £18.2bn as part of the “divorce bill”. As a non-member, Britain will pay £3bn less from 2020/2021, rising to £5.8bn in 2022/23. But the government has already agreed to maintain existing EU spending on agriculture, universities, regional development and other areas – there is no spare largesse for the NHS.

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And more importantly, Brexit is forecast by the Office for Budget Responsibility (and every other major body) to harm, rather than improve, the public finances. After the referendum, the OBR estimated a net fiscal cost of £15bn a year (or nearly £300m a week) by 2020/21. Reduced EU trade and lower immigration which May has explicitly stated will be the result will depress government revenue.

The entirety of the £25bn NHS spending increase will need to be raised through government borrowing, tax increases or cuts elsewhere. At present, the policy is precisely what the Tories rejoice in accusing Labour of: an unfunded spending commitment.

Brexit has already contaminated the Conservatives’ cultural brand. The liberal metropolitans who the party previously wooed were alienated by May’s disregard for Remainers (“citizens of nowhere”) and her support for fox hunting. Not content with this, the Tories are now trashing their economic brand. Hard Brexit, it appears, must be delivered at any cost. The “party of business” is becoming the party of anti-business.