Chancellor warns no-deal Brexit to have largest negative impact on Northern Ireland
Philip Hammond has reiterated warnings over a no-deal Brexit having "large fiscal consequences", hours after the Government began outlining its preparations if no agreement is reached.
Weekly Business Digest Newsletter
The Chancellor pointed to disputed provisional analysis, released earlier this year, which claimed GDP could fall and borrowing could be around £80 billion a year higher by 2033/34 under a scenario in which Britain resorted to World Trade Organisation (WTO) terms due to no agreement with the EU.
Mr Hammond added this initial January analysis is undergoing a "process of refinement" ahead of a parliamentary vote on any deal, noting scenarios which have higher barriers to trade with the EU are expected to have a "more damaging effect" on the economy and public finances.
He also mounted a defence of the Government's preferred approach, which was outlined in a white paper following a Cabinet summit at Chequers, by saying the economic and fiscal impacts of this would be "substantially better" than no deal.
The Government's proposals include a "common rulebook" with the EU on goods, which Theresa May has argued would not stop the UK doing trade deals.
Mr Hammond's comments came in a letter to Conservative MP Nicky Morgan, chairwoman of the Treasury Select Committee.
The Chancellor wrote: "This January provisional analysis estimated that in a no-deal/WTO scenario, GDP would be 7.7% lower (range 5.0%-10.3%) relative to a status quo baseline. This represents the potential expected static state around 15 years out from the exit point.
"The analysis did not estimate the path the economy and different sectors might take under no deal and the potential for short-term disruption."
Mr Hammond added: "Under a no-deal/WTO scenario, chemicals, food and drink, clothing, manufacturing, cars, and retail were estimated to be the sectors most affected negatively in the long-run, with the largest negative impacts felt in the North East and Northern Ireland.
"GDP impacts of this magnitude, were they to arise, would have large fiscal consequences. The January analysis estimated that borrowing would be around £80 billion a year higher under a no-deal/WTO scenario by 2033-34, in the absence of mitigating adjustments to spending and/or taxation, relative to a status quo baseline.
"This is because any direct financial savings are outweighed by the indirect fiscal consequences of a smaller economy.
"The initial, January cross-Whitehall analysis is now undergoing a process of refinement in the run-up to a parliamentary vote on the deal.
"However, we expect the analysis to show that for scenarios in which we have higher barriers to trade with the EU there will be a more damaging effect on the economy and public finances."
On the Government's preferred approach, Mr Hammond went on: "It is expected that the economic and fiscal impacts of the white paper model will be substantially better than no deal, protecting jobs and livelihoods and supporting both the UK and EU's commitments to no hard border between Northern Ireland and Ireland."
Labour MP Virendra Sharma, a supporter of the pro-EU Best for Britain campaign, said Mr Hammond's letter shows the "chaos at the heart of Government".
He said: "This letter also shows us that the Government is playing Russian roulette with our economy."
Pro-European Mrs Morgan, in response to the letter, said: "The Chancellor has confirmed that the Government forecasts a disastrous hit to our economy and living standards in the event of a 'no-deal' Brexit. The committee will expect an updated analysis to be published in good time to inform Parliament's key decisions on the final deal."