There would be no “austerity budget” this week if Brexit had not “permanently damaged” the UK economy, a former Bank of England policy chief says.
Michael Saunders said the huge spending cuts and tax rises to be announced on Thursday are a direct consequence of Boris Johnson’s skeleton trade deal, which had killed growth.
“It’s reduced the economy’s potential output significantly, eroded business investment,” said the former external member of the Bank’s monetary policy committee, which sets interest rates.
“If we hadn’t had Brexit, we probably wouldn’t be talking about an austerity budget this week. The need for tax rises, spending cuts, wouldn’t be there, if Brexit hadn’t reduced the economy’s potential output so much.”
On Sunday, the chancellor Jeremy Hunt provoked ridicule when he denied leaving the EU had made Britain poorer – despite that being the conclusion of the Treasury’s own spending watchdog.
But Mr Saunders told Bloomberg TV: “The UK economy as a whole has been permanently damaged by Brexit.”
On Thursday, in a landmark autumn statement, Mr Hunt is expected to unveil £35bn of cuts and £20bn of tax hikes, mainly from dragging more people into paying income tax despite rampant inflation.
The Treasury argues it faces a fiscal “black hole” of up to £60bn, but it has been previously calculated that lower growth since Brexit has swiped around £40bn of annual tax revenues.
Mr Saunders’ comment came as a former environment secretary admitted the post-Brexit trade agreements with Australia and New Zealand – the only new deals the UK has signed – had brought little benefit.
“I no longer have to put such a positive gloss on what was agreed,” George Eustice told MPs, adding: “The Australia deal is not actually a very good trade deal for the UK.
“We did not actually need to give Australia nor New Zealand full liberalisation of beef and sheep. It was not in our economic interests to do so.
“And neither Australia nor New Zealand had anything to offer in return for such a grand concession.”
On Sunday, Mr Hunt told the BBC: “What I don’t accept is the premise that Brexit will make us poorer”, insisting “there are also opportunities and you have to see it in the round”.
But Mr Saunders said the government should be focusing on “improving trade links with the EU”, along with investing in education and tackling long-term sickness keeping working-age people out of jobs.
Ministers have defended the Christmas 2020 trade deal and there have been no talks attempting to improve it – amid the conflict over the UK’s plans to tear up the Northern Ireland Protocol.
