They have accused him of scare-mongering about the impact of leaving the EU on World Trade Organisation (WTO) terms rather than with a negotiated withdrawal agreement, and poured scorn on the Treasury’s analysis he has based his estimates on.
Yeovil MP Marcus Fysh tweeted that it was time to rev up his “take down of the Treasury’s incredibly dubious Brexit forecasts, since the chancellor seems determined to wheel them out again for yet another instalment of dodgy project fear”.
Meanwhile, Jacob Rees-Mogg, MP for North East Somerset and chairman of the European Research Group, told the BBC’s Newsnight last night that “the Treasury’s Brexit panic means you can no longer trust the Treasury’s forecast”.
Hammond’s warning is contained in a letter he sent yesterday to Nicky Morgan, chair of the Treasury Select Committee.
In it he reiterates the findings of a cross-Whitehall briefing, published in January, which estimated that a no-deal/WTO Brexit would have an adverse impact on GDP over a 15-year period, reducing it by 7.7%.
He adds that additional analysis has indicated that chemicals, food and drink, clothing, manufacturing, cars and retail would be negatively affected in the long run, “with the largest negative impacts felt in the north east and Northern Ireland”.
“GDP impacts of this magnitude, were they to arise, would have large fiscal consequences,” he writes.
“The January analysis estimated that borrowing would be around £80bn a year higher under a no deal/WTO scenario by 2033-34, in the absence of mitigating adjustments to spending and/or taxation, relative to a status quo baseline. This is because any direct financial savings are outweighed by the indirect fiscal consequences of a smaller economy.”
Hammond says the analysis is currently being refined but he expects it to show that there will be a more damaging effect on the economy and public finances where there are higher barriers to trade with the EU. “These are conclusions that many other credible external organisations have come to independently, including the IMF, the OECD, the LSE and NIESR,” he adds.
In the letter, he gives his backing to the July White Paper – the Chequers agreement – and suggests that the economic and fiscal impacts of its proposals will be significantly better than no deal, “protecting jobs and livelihoods and supporting the UK and EU’s commitment to no hard border between Northern Ireland and Ireland”.
Earlier this week, Rees-Mogg wrote to Conservative associations urging them to reject the Chequers agreement which he believes would “shackle [the UK] to the EU forever”.
“We would be out of Europe yet still run by Europe,” the letter said. “This is why the prime minister should ‘chuck Chequers’ and instead seek a Canada-style free trade agreement with the EU to make the most of the global opportunities that lie ahead.”
He added that it was time the government realised that the EU stands to lose much from a no-deal Brexit and “stopped being cowed by the EU’s threats”.