Fringe Box



Letter: Why is the Chancellor Threatening an Extraordinary Budget?

Published on: 16 Jun, 2016
Updated on: 16 Jun, 2016

EU & UK FlagsFrom Gordon Bridger

Hon Alderman and former Mayor of Guildford

In the annals of our economic history it is difficult to recall such an extraordinary case of financial blackmail made to the electorate by a British chancellor of the exchequer as that made by George Osborne which threatens them with tax increases if they vote in favour of  leaving the EU.

It is even more extraordinary as the economic justification for penalising public misbehaviour is in incomprehensible. Let me explain why. There are  two economic issues which  could create problems, serious or otherwise, to our economy should we decide to leave.

The first is that our trade balance with the EU could get much worse than it is  now if  our exports were curtailed by EU action. But why should they do this? Since they have a huge trade surplus with us any such penalty would hurt them more than us and we would be obliged to retaliate.

One can be sure that that EU exporters are not going to stand by and be used as  weapons of retaliation.  And, in any case, since there is a two year period before our withdrawal takes place they could take penalising action until two years after we give them official notice of withdrawal. So why is George Osborne claiming a crisis so soon?

The other economic issue which could create problems, and is more valid, is that investors foreign or local, might not regard Britain as a suitable base for their investments, so investment would decline and the value of the pound would drop.

But this would be a long-term problem  and not  justify an immediate new budget as George Osborne says. It is true that a lower valued pound would increase costs of imports and holidays abroad, but it would encourage exports – just what we should be doing anyhow as we are running a serious balance of trade deficit. It would actually increase our competitiveness not decrease it.

So why this immediate panic?

Clearly many investors are nervous and this will cause concern but once investors get over the shock they would find Britain a better investment better that countries with a tottering Euro.

Those voters who are worried by concern expressed by the Chief Executive of Rolls Royce, that he would have to consider whether to go ahead with a major new expansion, should note that all he said was that, “he would consider it”.

But does anyone really think that Rolls Royce who provides most of the value added of the Airbus, with all the expertise we have in Britain would not go ahead? Of course not. He should be cheering that a devalued pound is just what he needs to increase exports.

As other industrialists such as Dyson and JCB have claimed we should be able to do perfectly well, and eventually better, outside the EU. There may be some initial chaos and confusion but this must be weighed against far more serious  problems created by uncontrolled immigration, by the lack of a competent honest and democratic European Union composed of 28 countries with conflicting interests, with an economy which has far more problems than ours.

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Responses to Letter: Why is the Chancellor Threatening an Extraordinary Budget?

  1. John Perkins Reply

    June 16, 2016 at 1:17 pm

    George Osborne clearly has no more regard for democracy than any other EU functionary.

  2. Stuart Barnes Reply

    June 16, 2016 at 6:00 pm

    Surely the answer is that they David Cameron and George Osbourne have lost the argument on the referendum and are redoubling Project Fear as a final roll of the dice.

  3. David Roberts Reply

    June 21, 2016 at 2:12 pm

    Even Brexit economists agree that there would be an economic downturn and a run on the pound if we left the EU, so an emergency budget would be a reasonable response.

    There’s nothing threatening or punitive about it.

    Having worked on promoting trade and investment with Europe, I disagree with Alderman Bridger’s two arguments:

    1. We export fewer goods to the EU than they do to us. But nearly 90% of our trade is in services, where we are much more dependent on other EU countries than they are on us.

    So, yes, it would pay them to retaliate by re-erecting trade barriers, e.g. against the City of London.

    2. It may be true that investment decisions have a long lead time, but overseas investors have had a long time to prepare for a Brexit and are poised to activate their plans to disinvest immediately.

    So immediate steps by the authorities to shore up market confidence seem perfectly reasonable.

    Of course the RR expansion would be in jeopardy.

    It is a delusion to think Airbus depends on the UK. Both Dyson and Bamford of JCB make use of cheap labour to manufacture outside the EU, so have a vested interest in Brexit.

    Overwhelmingly, though, business wants us to Remain.

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