More project fear/reality

This morning, the Government's independent Office of Budget Responsibility (OBR) released its report on the cost of no deal Brexit.

Headlines are:

No Deal Brexit forecast to lead to a £30 billion a year hit to the public finances per year, according to the first official projection from the Government’s independent udgetary watchdog - the OBR. Fall in tax revenues falling way short of money saved on EU fees.

OBR have done the first detailed fiscal projection of every tax and spending item, based on IMF No Deal situation - so this is not Treasury.

Income tax & NICs - hit by cyclical downturn - 16.5bn a year down from 2020-21

Capital taxes - falls in asset prices see 10b a year fall

But debt interest is lower because interest rates are predicted to fall, even as borrowing shoots up - £5bn less a year

Customs duties boosts receipts by 6bn a year next fiscal year then 10bn. But limited impact on borrowing, because tariff income already accounted for - OBR.

VAT forecast to be £3bn down... Onshore corporation tax also forecast to be £3bn down from 2021-22. Lower house prices also taking £2.5bn off receipts for stamp duty - OBR.

No Deal stress test puts £/euro rate at near parity 1.02-1.03 for four years post 2020-21.

Residential property prices down versus March OBR - by 8.4% next year and 5.4% the year after..a v steep drop in commercial property -21% next year.

OBR’s Robert Chote says that this stress test is not a worst case scenario, and it isn’t even the IMF’s worst case scenario.

Chote - The Chancellor’s £90bn a year number on the hit to public finances is a longer run assessment... the £80bn a year benefit referred to by Jacob Rees Mogg “is a view at one end of the spectrum.

OBR forecasts includes the idea that after a No Deal Brexit, the Bank of England would look to support the economy with base rate cuts

OBR also assumes a package of fiscal support from the Government after a No Deal of £10bn a year to tariff affected businesses in agriculture and manufacturing and non-tariff barrier affected service sector.

The OBR’s £30 billion annual hit to the public finances from its No Deal Brexit stress test equates to £576 million a week in higher deficits from next fiscal year..