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Sunday, June 17, 2018

Is May misleading us on the Brexit dividend?

Today's headlines are all about the supposed additional £20bn a year injection of extra cash by 2023-24 being proposed by Theresa May for the National Health Service. She argues that this money will pay for thousands more doctors and nurses, while cutting cancer deaths and improving mental health services.

However, other news reports highlight the on-going disagreement between the Health Secretary and the Chancellor of the Exchequer over how much extra the government can afford to put into the health service, whilst the cabinet is also reportedly split as to how it will be paid for and to what extent taxes will need to be raised to contribute to the funding.

The Prime Minister herself appears to be adamant that she will be able to find the money from the supposed 'Brexit dividend'. Indeed, Daily Mail reports on an article written for them by Mrs May in which she said: “Now, as we leave the European Union and stop paying significant annual subscriptions to Brussels, we will have more money to spend on priorities such as the NHS.” What utter codswallop.

The timing of these claims are not coincidental. The Government is facing another substantial back bench revolt next week if the House of Lords returns the Brexit bill with its amendments reinstated. The Tory rebels will not be so easily bought off this time after being misled by the Prime Minister and the whips last week. If May can link her version to Brexit to a significant cash increase into the NHS then she may be able to prevail.

Her problem though is that the Brexit dividend does not exist. As George Eaton explains in the New Statesman, the £350m figure used by the Leave campaign did not take into account the UK’s £5.6bn EU budget rebate. In 2017, Britain’s net contribution was not £350m a week but £250m. Once the £4.1bn of EU funding allocated to the UK is also included, the net contribution falls further to £173m a week:

That would still account for nearly half the NHS increase promised by May (which will reach £384m by 2023-24). But over the next five years, there will be no “Brexit dividend” of any size.

Until the conclusion of the transition period (due in December 2020), the UK will continue to make EU membership payments (totalling £16bn). From 2021-28, it will contribute £18.2bn as part of the “divorce bill”. As a non-member, Britain will pay £3bn less from 2020/2021, rising to £5.8bn in 2022/23. But the government has already agreed to maintain existing EU spending on agriculture, universities, regional development and other areas - there is no spare largesse for the NHS.

But most importantly, Brexit is forecast by the Office for Budget Responsibility (and every other major body) to harm, rather than improve, the public finances. After the referendum, the OBR estimated a net fiscal cost of £15bn a year (or nearly £300m a week) by 2020/21. Reduced EU trade and lower immigration - which May has explicitly stated will result - will depress government revenue. As Paul Johnson, the director of the Institute for Fiscal Studies, has said: “There is no Brexit dividend. Payments to the EU will fall [after Brexit], but tax revenues will fall more as a result of Brexit.”

It follows therefore that the entirety of the £20bn NHS spending increase will need to be raised through government borrowing, tax increases or cuts elsewhere. In other words it is precisely what Tories rejoice in accusing Labour of, an unfunded spending commitment. Isn't it time that the Prime Minister came clean and admitted that uncomfortable fact. Instead she is once more misleading people by suggesting that Brexit will be good for us.
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