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OBR head Robert Chote: Brexit and austerity have harmed economic growth

The Office for Budget Responsibility chair says the British economy is "weak and stable, rather than strong and stable". 

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

George Eaton is political editor of the New Statesman.

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Labour’s renationalisation plans look nothing like the 1970s

The Corbynistas are examining models such as Robin Hood Energy in Nottingham, Oldham credit union and John Lewis. 

A community energy company in Nottingham, a credit union in Oldham and, yes, Britain's most popular purveyor of wine coolers. No, this is not another diatribe about about consumer rip-offs. Quite the opposite – this esoteric range of innovative companies represent just a few of those which have come to the attention of the Labour leadership as they plot how to turn the abstract of one of their most popular ideas into a living, neo-liberal-shattering reality.

I am talking about nationalisation – or, more broadly, public ownership, which was the subject of a special conference this month staged by a Labour Party which has pledged to take back control of energy, water, rail and mail.

The form of nationalisation being talked about today at the top of the Labour Party looks very different to the model of state-owned and state-run services that existed in the 1970s, and the accompanying memories of delayed trains, leaves on the line and British rail fruitcake that was as hard as stone.

In John McDonnell and Jeremy Corbyn’s conference on "alternative models of ownership", the three firms mentioned were Robin Hood Energy in Nottingham, Oldham credit union and, of course, John Lewis. Each represents a different model of public ownership – as, of course, does the straightforward takeover of the East Coast rail line by the Labour government when National Express handed back the franchise in 2009.

Robin Hood is the first not-for-profit energy company set up a by a local authority in 70 years. It was created by Nottingham city council and counts Corbyn himself among its customers. It embodies the "municipal socialism" which innovative local politicians are delivering in an age of austerity and its tariffs delivers annual bills of £1,000 or slightly less for a typical household.

Credit unions share many of the values of community companies, even though they operate in a different manner, and are owned entirely by their customers, who are all members. The credit union model has been championed by Labour MPs for decades. 

Since the financial crisis, credit unions have worked with local authorities, and their supporters see them as ethical alternatives to the scourge of payday loans. The Oldham credit union, highlighted by McDonnell in a speech to councillors in 2016, offers loans from £50 upwards, no set-up costs and typically charges interest of around £75 on a £250 loan repaid over 18 months.

Credit unions have been transformed from what was once seen as a "poor man's bank" to serious and tech-savvy lenders where profits are still returned to customers as dividends.

Then there is John Lewis. The "never-knowingly undersold" department store is owned by its 84,000 staff, or "partners". The Tories have long cooed over its pledge to be a "successful business powered by its people and principles" while Labour approves of its policy of doling out bonuses to ordinary staff, rather than just those at the top. Last year John Lewis awarded a partnership bonus of £89.4m to its staff, which trade website Employee Benefits judged as worth more than three weeks' pay per person (although still less than previous top-ups).

To those of us on the left, it is a painful irony that when John Lewis finally made an entry into politics himself – in the shape of former managing director Andy Street – it was to seize the Birmingham mayoralty ahead of Labour's Sion Simon last year. (John Lewis the company remains apolitical.)

Another model attracting interest is Transport for London, currently controlled by Labour mayor Sadiq Khan. TfL may be a unique structure, but nevertheless trains feature heavily in the thinking of shadow ministers, whether Corbynista or soft left. They know that rail represents their best chance of quick nationalisation with public support, and have begun to spell out how it could be delivered.

Yes, the rhetoric is blunt, promising to take back control of our lines, but the plan is far more gradual. Rather than risk the cost and litigation of passing a law to cancel existing franchises, Labour would ask the Department for Transport to simply bring routes back in-house as each of the private sector deals expires over the next decade.

If Corbyn were to be a single-term prime minister, then a public-owned rail system would be one of the legacies he craves.

His scathing verdict on the health of privatised industries is well known but this month he put the case for the opposite when he addressed the Conference on Alternative Models of Ownership. Profits extracted from public services have been used to "line the pockets of shareholders" he declared. Services are better run when they are controlled by customers and workers, he added. "It is those people not share price speculators who are the real experts."

It is telling, however, that Labour's radical election manifesto did not mention nationalisation once. The phrase "public ownership" is used 10 times though. Perhaps it is a sign that while the leadership may have dumped New Labour "spin", it is not averse to softening its rhetoric when necessary.

So don't look to the past when considering what nationalisation and taking back control of public services might mean if Corbyn made it to Downing Street. The economic models of the 1970s are no more likely to make a comeback then the culinary trends for Blue Nun and creme brûlée.

Instead, if you want to know what public ownership might look like, then cast your gaze to Nottingham, Oldham and dozens more community companies around our country.

Peter Edwards was press secretary to a shadow chancellor, editor of LabourList and a parliamentary candidate in 2015 and 2017.