Brexit will hit economy harder than Covid, says OBR chairman




  • In World
  • 2021-10-27 22:57:09Z
  • By The Telegraph
Brexit could wipe 4 per cent off the UK
Brexit could wipe 4 per cent off the UK's GDP, the watchdog said - GETTY IMAGES  

The impact of Brexit on the UK economy will be worse than that caused by the Covid pandemic, according to the chairman of the Office for Budget Responsibility (OBR).

Richard Hughes said the OBR had assumed leaving the European Union would "reduce our long run GDP by around 4 per cent".

He told the BBC: "We think that the effect of the pandemic will reduce that (GDP) output by a further 2 per cent.

"In the long term it is the case that Brexit has a bigger impact than the pandemic", Mr Hughes said, hours after the OBR revised its earlier prediction for this year's VAT receipts following higher-than-expected inflation.

The fiscal watchdog said it expected inflation to reach 4.4 per cent while warning it could hit "the highest rate seen in the UK for three decades".

The Treasury will collect £4 billion more in VAT this year than it expected because of the rising cost of living, the OBR forecast says.

Inflation is now expected to reach four per cent in 2022, the body said, before falling to 2.6 per cent in 2023 and 2.1 per cent in 2024.

The Bank of England's target rate of inflation is 2 per cent but it had been running below that level between mid-2019 and earlier this year.

The rising cost of fuel and other goods created by the UK's HGV crisis has brought the current level to an average of 3.1 per cent over the past 12 months.

The rise means VAT receipts will also be £9.3 billion higher next year, and £9.4 billion the year after, the OBR said.

Rishi Sunak, the Chancellor, had cut the rate of VAT for tourism and hospitality businesses, including pubs and shops, to 5 per cent during the pandemic to inject cash into those sectors.

However, since Sept 30 the rate for those industries has risen to 12.5 per cent and from April next year it will return to its standard level of 20 per cent, which it had been since 2011.

Mr Sunak was rumoured to be considering a VAT cut for energy bills in Wednesday's Budget, which Labour said would have reduced receipts to the Treasury by less than £1bn, but the cut did not appear in his statement.

A Labour source on Wednesday night accused the Government of profiting through VAT income from a crisis it had created.

"That money is basically coming from British people paying more because of rising costs," the source said.

"The reason we have got higher costs is because there are more shortages on the shelves and issues in the supply chain, which have happened because there hasn't been a plan from Government to deal with the skills shortages they have."

On Wednesday, the Resolution Foundation think-tank warned that inflation will "all but end income growth next year" and that a typical worker on £29,000 could end up worse off despite wage increases.

The OBR pointed to a 3.6 per cent rise in wages and a further 1.5 per cent increase in other sources of income but it suggested the increases would be largely counteracted by rising prices.

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