Living standards are expected to fall as a result of the vote to quit the EU and foreign companies will be deterred from investing in Britain, according to economists appearing before a parliamentary committee.
They called on the chancellor to ditch plans for a tough budget of tax rises and spending cuts in favour of higher public investment to prevent the UK sinking into recession.
David Miles, a former member of the Bank of England’s monetary policy committee, said there would be knock-on effects to government revenue and spending from a fall in economic growth and a possible recession.
“It seems likely GDP growth will be slower and it will be important the government gives itself more flexibility in meeting spending rules and change the aim of trying to close the deficit over the next few years,” the Imperial College economist told MPs on Tuesday.
The comments follow a similar attack on George Osborne from former Bank of England governor Mervyn King, who said the chancellor’s plan for a “punishment budget” immediately after the Brexit vote, and now delayed until the autumn, left him baffled.
Appearing before the Treasury select committee in a hastily convened meeting, Stephen King, chief economist at HSBC, said living standards would “take the strain” as Britain struggled to cope with the aftershocks of the vote to leave the EU.
King said higher petrol prices and more expensive imported food resulting from the low pound were unlikely to be offset by a boost to exports, while the uncertainty surrounding Brexit would reduce investment, leading to job losses and falling wages.
A decline in foreign investment could hurt productivity, triggering the same fall in living standards the same situation seen after the 2008 financial crash.
King’s message was reinforced by Sir Richard Branson, who was among several business people to warn that foreign investors have begun to shelve or cancel planned projects in the UK.
Lord Turnbull, a crossbench peer and former head of the civil service, said the government need to delay telling the EU commission of a decision to leave using article 50 before Whitehall was sure what ministers were asking for.
He said it would be unwise to trigger the clause in the Lisbon treaty until next spring to allow officials to prepare their negotiating positions. Any later and they might find French and German officials being distracted by parliamentary and presidential elections, scheduled for the autumn of 2017.
“What we don’t want is trigger article 50 and then for [the German chancellor] Angela Merkel to turn around and say she doesn’t want to talk to us because she has bigger fish to fry,” Turnbull said.
“It’s a lot of work to get through. A new cabinet and frontbench will need to get into their jobs and then into the details of trading arrangements, what we are going to offer on the movement of people. We are not going to get all we want on one and not make a concession on the other.”
Turnbull said he supported basing the Brexit team in the Cabinet Office, but added: “At the moment it is under the charge of Oliver Letwin, who I think is completely unsuitable in the longer term. He has spent the last six years as a kind of conciliary of the prime minister. He has been absolutely at the heart of No10. And that is not the profile needed for carrying this work forward.”
He said it needed someone committed to the cause of Brexit.
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