Philip Hammond was wrong to believe there was a “deal dividend” from Brexit for the economy and the government was working towards balancing its books, according to a highly critical report from a cross-party group of MPs.
The Treasury select committee’s report into the October Budget accused the chancellor of failing to give the independent Office for Budget Responsibility sufficient information to produce accurate forecasts and then presenting them in “odd” and “non credible” ways.
Nicky Morgan, chair of the committee, called on Mr Hammond to clarify his budgetary rules more precisely because the current objective “now has no credibility, Parliament cannot use it to hold government to account, and it should be replaced”.
The frustration from MPs of all parties in the report published on Tuesday stemmed from the chancellor’s fondness for promising a “deal dividend” of more rapid economic growth from increased business confidence and investment if parliament agreed the Brexit withdrawal agreement.
The OBR poured cold water on this assessment in public last autumn, saying it already assumed an orderly Brexit. The committee agreed with the fiscal watchdog and said this meant there was little additional growth that would arise if the deal was agreed, but significant risks if there was no deal.
“It’s not credible to describe this as a dividend,” Ms Morgan said, echoing the conclusions of the report.
The MPs were also unconvinced by the chancellor’s “fiscal objective” to run a budget surplus as early as possible in the next parliament, which the OBR has long judged was unlikely to be achieved.
When presented with good news on the forecast, the MPs noted Mr Hammond liked to spend the money rather than reduce the deficit, as he did in October with extra National Health Service spending, but if the forecasts were downgraded, he just borrowed more. Describing the chancellor as “fortunate”, the report said: “If continued in the long run, this approach would lead to a ratcheting up of debt levels”.
The report also criticised the chancellor for loose statements, saying that austerity was coming to an end without any definition of what that meant. It called on the Treasury in the March 13 spring statement to delete this “expansive but also imprecise” definition and replace it with something measurable so MPs could hold the government to account.
The Treasury is highly unlikely to oblige in time for the spring statement, for which the OBR has already started the forecasting process on the current fiscal rules without any changes. And without any fresh clarity on Brexit compared with the Budget in October, the fiscal watchdog is also planning on retaining its assumption of a smooth Brexit process.
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