A new deal: TUC statement on the spending review

There is widespread consensus that a no-deal Brexit would hurt working people’s livelihoods, leading to a fall in economic growth, job losses, and a reduction in wages. A no deal Brexit will also damage public services, diverting much needed funds into preparation, and disrupting the economy’s capacity to deliver the sustainable tax revenues that fund them.

A no deal Brexit would severely derail the economy

The government’s own long-term economic analysis (covering 15 years from exit point) suggests a negative impact on GDP of between 5 and 10 percent (averaging 7.6 per cent), with variations across regions[1].

In the more immediate term, the OECD has estimated that a no-deal could reduce UK GDP by up to 2 per cent over two years[2]. The OBR, in its Fiscal Risks Report, used IMF projections to suggest by mid-2021 GDP could be up to 4 per cent lower relative to March 2019 and similarly the Bank of England has estimated GDP, in a no-deal scenario could be between 4 and 7.5 per cent lower relative to May 2016.

The uncertainty of Brexit has already impacted business investment with the CBI reporting in 2017 that 40 per cent of the businesses they surveyed stated investment decisions had been negatively affected by Brexit uncertainty[3].

The Financial Times showed a fall in foreign ‘greenfield’ investment of 30 percent in the three years since the referendum – compared to the same period pre-June 2016. The OECD suggested in 2016 that FDI inflows could decline in the long run by between 10 per cent in the most optimistic scenario and 45 per cent in the most pessimistic scenario[4]. More recently, NIESR have stated that in a no-deal scenario, FDI is likely to reduce in the long run by an average of 24 per cent, and overall business investment by 3.5 per cent[5].

A no-deal Brexit would mean fewer jobs, lower wages and a fall in incomes

In a no deal scenario, the GLA has estimated that up to 482,000 jobs could be lost by 2030[6].

The Bank of England in its ‘unprepared Brexit scenario’ modelling has suggested the unemployment rate could peak at 5.5 per cent in 2021 and the OBR has estimated 200,000 job losses due to no-deal[7]. OBR predictions also suggest lower employment could impact income tax and national insurance receipts by £4 billion at its worse in 2021/22[8].

Real wages are almost certain to fall, with the OBR projecting they will be 2.5 per cent lower by the start of 2024[9]. The government’s own long-term analysis suggests real wages could fall by 10 per cent in the event of a no deal[10].

On income, the OECD estimated in their 2016 report that as a result of a 3 per cent reduction in GDP in the immediate aftermath of a no-deal, household income could fall on average by £2,200. By 2030, they estimated that household income could have reduced by between £3,200 and £5,000[11]. Operation Yellowhammer’ recognises that there is likely to be increases in food, energy and fuel costs which will disproportionately affect low-income groups[12].

A no deal Brexit would damage public services

A weaker economy as a consequence of a no-deal Brexit would disrupt the sustainable tax revenues that fund public services.

And the spending on preparations for no-deal will diverting valuable funds that could be invested in public services now. According to the government’s long-term analysis, by 2035-36 net public borrowing, as a result of their modelled no-deal, could see an increase of between +2.5 per cent and 3.8 per cent (£96.4 billion - £141.5 billion), as a percentage of GDP[13]. Former Chancellor Phillip Hammond also suggested the costs of mitigating a disorderly no-deal could by up to £90 billion.

In the shorter term, Chancellor Sajid Javid has announced an additional £2.1 billion in funds (£6.3 billion in total now set aside) to help mitigate some of the immediate challenges of no-deal Brexit. As we set out further below, the money set aside for no deal should be used to support stretched public services.

A new approach

·        The Government should rule out the possibility of a no-deal Brexit and find a solution to the Brexit crisis which protects jobs, rights and peace in Northern Ireland. Without ruling out a no-deal Brexit, the Chancellor cannot begin the vital work of rebuilding Britain’s economy and public services.