epa06271121 Pro-EU campaigners protest outside the Houses of Parliament in London, Britain, 17 October 2017. Media reports state that British Labour Party, Shadow Brexit secretary Sir Keir Starmer said that the party would oppose a no-deal exit if such a vote was brought before the British House of Commons in 2019. EPA/NEIL HALL
Pro-EU campaigners outside the Houses of Parliament on Tuesday © EPA

The UK must seek the “closest possible” economic relationship with the EU to minimise the damage that will be caused by Brexit, according to the Organisation for Economic Cooperation and Development.

In its biennial survey of the UK economy on Tuesday, the Paris-based organisation said there were already signs that Brexit-related uncertainty is damaging Britain’s economic performance. The OECD said a reversal of the Brexit decision — either as the result of a second referendum or at the hands of a new government — would have a “significant” positive impact on growth.

But in a press conference in London on Tuesday, Angel Gurría, secretary-general of the OECD, sought to play down the suggestion that the Brexit vote should be reversed, saying: “After the decision, regardless of what I personally and the OECD institutionally had been advocating for before the referendum, we now are devoted to . . . make the transformation and to make the deal as seamless, as smooth as possible.”

He said the exit negotiations involved “mind-boggling complexity” to undo 40 years of integration between the UK and the EU, and that negotiators should not be “wedded” to a particular timetable. But he added there were “no cataclysmic scenarios here”.

A UK government spokesperson said: “We are working to achieve the best deal with the EU that protects jobs and the economy. We aim to agree a free-trade agreement that is comprehensive and ambitious.”

But pro-Brexit MPs rejected the OECD report on Tuesday. Gisela Stuart, the Labour MP, said: “It is laughable that the EU-funded OECD, at a time that is the most helpful possible for Brussels, has the gall to intervene in our negotiations.”

“The British public didn’t believe the OECD’s scaremongering before, and nor should they start now,” she said.

The OECD report also said the government should do more to address low productivity, which has in Britain lagged behind other industrialised economies for decades. The report highlighted the particularly low level of output per hour by workers outside London and the South East.

Boosting productivity is viewed as the only way to ensure UK living standards improve. Output per hour has stagnated since 2010 in the UK but has grown in other industrialised economies. The most-recent official data show productivity was 0.6 per cent lower in the second quarter of 2017 than in the final quarter of 2016.

The OECD’s intervention comes as Philip Hammond, the chancellor, prepares to present his second Budget on November 22. The Office for Budget Responsibility, the official economic forecaster, has signalled it will downgrade its estimates for growth and tax revenues in light of the evidence of a continuing stagnation of productivity growth, which will limit Mr Hammond’s scope for giveaways.

Tuesday’s report suggests that Mr Hammond could fund measures to boost productivity by raising tax on the self-employed and abandoning the triple lock on the state pension in favour of indexing it to earnings instead.

But these reforms could be difficult for the chancellor. He had to abandon a planned increase in tax on the self-employed this year after a backbench revolt and the Treasury said on Tuesday that they would not be revisiting this policy. In addition, the Conservative government has committed to maintaining the triple lock on pensions until the end of this parliament.

The triple lock means the pension rises each year in line with whichever is highest: consumer price inflation, average earnings growth and 2.5 per cent. Next year, the state pension will go up in line with CPI, which hit 3 per cent in September. The most recent figures show earnings growth was 2.1 per cent over the year to July.

The report also highlighted the importance of boosting skills, concluding that the growth in self-employment, zero-hours contracts and other forms of non-standard employment has reduced on-the-job training. The OECD suggests the government tighten the criteria for engaging workers to help ensure more people develop their skills and improve the quality of jobs.

In 2015, the OECD urged the Bank of England to start raising interest rates and reducing its quantitative easing programme as inflation rose.

More recently, members of the BoE’s rate-setting Monetary Policy Committee have signalled they are minded to raise rates soon.

But Tuesday’s OECD report said monetary policy should “remain supportive amidst the ongoing slowdown in the economy as the negative effects of Brexit continue to materialise”.

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