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Spring Statement and Brexit: Will there be a Deal Dividend?

Thursday 14 March 2019

DR TONY Syme, expert in macroeconomics and international finance at the University of Salford Business School, comments on Chancellor Philip Hammond’s Spring Statement.

Dr Syme said: “It was expected to be a low-key affair with few significant policy announcements because of the uncertainty over the ability of the UK to leave the EU this month with a deal. He has instead attracted a lot of attention for his final words on Brexit and the call to take no-deal off the table.

“The negative impact of no-deal upon the economy is undeniable, but his talk of a ‘Deal Dividend’ was based on two highly questionable factors: healthy government finances and a release of pent-up investment by the private sector.

“The healthy government finances that Hammond cited were largely due to the OBR’s assumption of an ‘orderly Brexit’. The current process of Brexit is anything but orderly.

“In terms of the release of pent-up business investment, Philip Hammond has cited this element of his ‘Deal Dividend’ for a number of months. The evidence for under-investment during this period of Brexit uncertainly is overwhelming. Business investment has fallen for four consecutive quarters and the OBR’s forecast for economic growth is that it will be at its lowest level since the financial crisis.

“But does that mean that firms are merely waiting for Brexit uncertainty to end before investing in new machinery and factories? The evidence is not supportive in the car industry. Nissan, Honda and Jaguar Land Rover have all announced that they are closing factories, citing Brexit as a major factor. In the finance sector, according to New Financial, 275 banking and finance firms have moved some or all of their business to the EU.

“The loss of factories and the loss of workers’ skills in this current period of prolonged disinvestment will have long-lasting effects on the productive capacity of the economy. Even if Philip Hammond does have the full £26n Brexit war chest to spend and we do have an orderly Brexit, it may achieve very little in the face of this Government’s Brexit strategy."

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Sam Wood

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