Brexit dividend DOESN’T exist: Watchdog rejects claims leaving EU will deliver billions for NHS as it warns austerity could be needed for 50 YEARS to keep lid on government debt
- OBR warns government austerity could be needed for 50 years to curb debt
- Watchdog dismissed claims that a Brexit dividend could help to boost the NHS
- Theresa May has pledged an extra £25billion a year for health service by 2023
Claims of a Brexit dividend for the NHS were dismissed by the Treasury watchdog today – as it warned that austerity measures could be needed for 50 years to stop public debt spiralling out of control.
The government’s pledge to inject £25billion extra into the health service will put debt on an ‘unsustainable upward trajectory’ without tax rises or spending cuts, the Office for Budget Responsibility warned.
In a grim assessment, the watchdog rejected the idea that leaving the EU will free up cash and said a black hole totalling around £111billion in today’s money had to be filled by 2023-24 in order to keep the books balanced.
The latest Fiscal Sustainability Report will spark a fresh row about dire warnings over the consequences of Brexit.
The OBR – headed by Robert Chote (pictured) – said a black hole totalling around £111billion in today’s money had to be filled by 2023-24 in order to keep the books balanced
Theresa May and then-Health Secretary Jeremy Hunt unveiled a plan for huge annual real-terms rises in health spending last month (pictured at the Royal Free Hospital)
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Theresa May unveiled a plan for huge annual real-terms rises in health spending last month, acknowledging that taxpayers ‘will have to contribute a bit more in a fair and balanced way’.
But she delighted Brexiteers by insisting some of the extra funding would come from savings from contributions to EU budgets.
The OBR rejected suggestions that the increased NHS spending could be paid for with a ‘Brexit dividend’, stating that ‘Brexit is more likely to weaken than strengthen the public finances overall’.
What is the row over the Brexit dividend about?
The Prime Minister (pictured on a visit to Frimley Park hospital) has claimed a Brexit dividend will help boost NHS spending
Theresa May has said the money Britain keeps when the country quits the EU – known as the Brexit dividend – will go towards funding the NHS.
In the referendum, Brexiteers including Boris Johnson said the windfall would equate to £350million a week.
Vote Leave plastered the number on the side of a red campaign bus and suggested the money be pumped into the NHS. The PM is saying she is making good on that pledge.
But the whole notion of a Brexit dividend is controversial and has been rubbished as ‘tosh’ by its critics – including Mrs May’s own MPs.
Economist Paul Johnson, of the Institute for Fiscal Studies, said any dividend will be wiped out by slower growth and lower tax revenues.
And he also pointed out that when Britain leaves the EU the country will go on paying vast amounts of money to Brussels as part of the Brexit divorce bill.
So while the UK will stop paying the annual £9billion, the country will still have a £39bn for years to come.
And the Health Secretary Jeremy Hunt risked inflaming the row by admitting the ‘dividend’ will not be ‘anything like’ the £25billion being pumped into the NHS.
‘On current policy we would expect the budget deficit to widen significantly over the long term, putting public sector net debt on a rising trajectory as a share of national income,’ the report said.
‘This would not be sustainable.’
The OBR said that without further action national debt could hit 80 per cent of of GDP in 2022 and an eye-watering 283 per cent by 2067.
‘The main lesson of our analysis is that future governments are likely to have to undertake some additional tightening beyond the fiscal plans in place for the next five years in order to address the fiscal costs of an ageing population and upward pressures on health spending,’ the report warned.
‘Leaving all or part of the June 2018 health spending announcement unfunded would simply require greater action later.’
Downing Street stood by the claims of a Brexit dividend today.
‘Yes, there are substantial sums of money which we are currently sending to Brussels. Once we have left the EU, we will no longer have to do so,’ the PM’s spokesman said.
The spokesman declined to discuss possible future tax rises, but said: ‘It remains a Government priority to continue to reduce the debt burden.’
In its own report, Managing Fiscal Risks, the Treasury said: ‘The Government is committed to reducing the level of public debt in a balanced way, while also providing more money for public services like the NHS, keeping taxes low and investing in infrastructure to build an economy that is fit for the future.
‘As a result, debt is forecast to begin its first sustained fall in a generation this year. This is an important turning point for the UK economy, but the Government needs to ensure that it has world-class management of fiscal risks to keep the public finances moving in the right direction.’
Under the OBR’s projections, public sector net debt is forecast to fall from a peak of 85.6 per cent of GDP in 2017/18 to 80 per cent in 2022/23.
But after that point, extra spending pressures including an ageing population and increasingly expensive medical treatments is forecast to drive it up to 282.8 per cent by 2067/68.
Branding the projected rise ‘unsustainable’, the report states: ‘Needless to say, in practice policy would need to change long before this date to prevent this outcome.’
Under the projections, annual state spending – excluding interest payments on the UK’s debt – would rise from 36.4 per cent of GDP in 2022/23 to 44.6 per cent in 2067/68. This is the equivalent of an extra £172.8billion in today’s money.
The Vote Leave bus suggested Brexit could free up hundreds of millions of pounds a week for the NHS
Health spending would rise from 7.6 per cent to 13.8 per cent of GDP over the same period, while pension costs would increase from 5 per cent to 6.9 per cent, unless the current triple-lock protection is abandoned. Adult social care costs would soak up 1.9 per cent of GDP in 50 years’ time, compared to 1.3 per cent in 2022.
Without changes to fiscal policy, these pressures would push the state deficit – the difference between the amount spent by the Government each year and the amount collected in taxes and other income – would rise from 0.3 per cent of GDP to 8.6 per cent over the same period, equivalent to £176.5billion a year in today’s money.
The report set out possible options for reining in debt, by ‘tightening’ fiscal policy through tax rises and spending cuts.
One option would be a one-off tightening of 5.2 per cent of GDP – £111billion in today’s money – in 2023/24, which could be expected to hold debt down to around 40 per cent of GDP in 2067/68, but would see it rise after that date.
An alternative would be to tighten policy by 1.9 per cent of GDP every decade for the next 50 years, which would stabilise debt at around the target level and prevent it taking off again, said the OBR.
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