“Ordinary families right across the country, by 2020, will be £1,250 a year worse off than they are now. And the reason, without a shadow of a doubt, is Brexit and us heading for a hard Brexit”
Tim Farron MP, 24 November 2016
This is wrong. Ordinary families aren’t forecast to be £1,250 a year worse off than they are now by 2020/21.
The Office for Budget Responsibility (OBR) expects national income in 2020/21 to be about £50 billion lower than it would have been, had the UK voted to remain in the EU. The OBR doesn’t think that the UK’s national income per household will decline between now and 2020, it just expects it to grow more slowly than it did before the referendum.
That does work out at about £1,250 lower per household. But confusingly, the change in “national income per household” isn’t the same as the change in “household income”.
National income, or Gross Domestic Product (GDP), measures the size of the economy. In the long term you’d expect a smaller economy to mean lower material living standards for ordinary people, but simply dividing national income by the number of households in the UK won’t tell you how real incomes will change for individual families. That’s affected by other things like taxes, benefits, prices and wages.
There’s also an unusual amount of uncertainty in this month’s forecast, so it would be wrong to assert the OBR’s expectations like they’re hard facts about the future.
That said, the Bank of England has actually produced a more pessimistic outlook.
“In terms of the next few years what the Office for Budget Responsibility said yesterday is that they anticipate real household disposable income - a fair judge for living standards - actually to be 2.8% higher in 2020/21 than it is at the moment”.
David Gauke MP, 24 November 2016
This is wrong. The OBR expects real household disposable income (or, what households can buy with their money once they’ve paid certain taxes and taken benefits) to rise by a little over 6% between 2016 and 2021.
But we’d expect that to happen, because in recent generations household incomes have tended to rise over time. There’s a concern that they’ve risen slowly or not at all since the financial crisis in 2007 and 2008, and there’s a question about whether Brexit will make them rise faster or slower in the future (most economists think slower).
It’s worth saying that there are a few ways to measure living standards other than household incomes.
We’re trying to contact David Gauke to see if he’s referring to another source.
“What we saw in the budget, in the Autumn Statement yesterday and the IFS and the OBR have confirmed this, is an announcement that we are going to see £290 million a week worse off, worse off because of this mess that we are in.”
Chris Leslie MP, 24 November 2016
This is correct according to one forecast, but there’s a lot of uncertainty in how these are arrived at.
The Office for Budget Responsibility (OBR) has said that changes as a result of leaving the EU will see borrowing increase by £15.2 billion more than it otherwise would have by 2020/21. The Institute for Fiscal Studies has said this will mean an extra £290 million borrowed each week.
This increase is due to several different predictions, including lower migration, lower productivity growth, and higher inflation.
These things are all very hard to predict. Migration, for instance, has been notoriously hard to anticipate in the past, because you’re effectively guessing what people’s future decisions will be and what kind of immigration system will be in place.
Eight months ago the OBR expected an £11 billion surplus, now a £21 billion deficit
Here’s how the forecast changed...
- Back in March, the OBR expected the government to collect more than it spends by the end of the decade, with an £11 billion budget surplus in 2020/21.
- Then, the OBR made some changes to how it calculates the government’s budget balance. Its ‘updated’ March forecast said that there would only be a £7 billion surplus.
- So far this year, the government has spent more and had a lower income than it expected. That reduced the forecast £7 billion to a £4 billion surplus.
- The OBR expects the referendum result to cost the government another £15 billion in 2020/21. That wipes out the £4 billion surplus they expected, leaving an £11 billion deficit.
- Finally, the government increased borrowing in the Autumn Statement to fund investment. That increased their expectations to a £21 billion deficit in 2020/21.
Of course these are only forecasts, which rely on a lot of assumptions. The OBR says that this month’s forecasts are particularly uncertain because no-one knows what outcome of Brexit negotiations will have.
“Just in terms of research financing—I’m an academic—8.8 billion is what the UK has gotten from the European Union in the last five years, while they only contributed 5.4 billion. We have been net beneficiaries of the European Union.”
Mariana Mazzucato, 24 November 2016
These figures appear to come from the Royal Society, an association of scientists. The thrust of the analysis seems right, although the UK is a net contributor to the wider EU budget. In other words, we get more out than we put in when it comes to science and technology, but pay in more than we get back overall.
Dispensing with the pedantry first: these numbers are in euro rather than pounds, and cover a seven-year period (2007-2013) rather than five. €8.8 billion is what UK researchers saw in EU grants in that period, made up of €6.9 billion from the main EU funding programme for research and €1.9 billion from another pot of money. (We haven’t found the original source for this last figure, but as the equivalent for 2014-2020 is €1.6 billion, there’s little reason to doubt it.)
By contrast, figures from the Treasury show that the UK’s “indicative contribution” to EU research coffers was £4.5 billion (€5.4 billion). So the UK was ahead of the game by a couple of billion. This may explain why many university leaders were strongly opposed to leaving the EU.
The government has guaranteed to replace EU research funding, if necessary, in the next few years. But the question of participation in these programmes in the long term depends on negotiations with the 27 remaining members.
While non-EU countries are part of the research funding structure, there are potential difficulties with the UK becoming one of these associate members—including its status as a net beneficiary, which effectively reduces the money available to everyone else. We’ll have to see how negotiations pan out.