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A video grab from footage broadcast by the U.K. Parliament's Parliamentary Recording Unit (PRU) shows British Chancellor of the Exchequer Philip Hammond as he delivers his Autumn Statement to the House of Commons in London on Nov. 23, 2016. (HO/AFP/Getty Images)
A video grab from footage broadcast by the U.K. Parliament's Parliamentary Recording Unit (PRU) shows British Chancellor of the Exchequer Philip Hammond as he delivers his Autumn Statement to the House of Commons in London on Nov. 23, 2016. (HO/AFP/Getty Images)

Amid gloomy economic data, tough reality of Brexit becoming clear Add to ...

When Britons voted to leave the European Union last June, Brexit backers hailed it as the start of a bright new future for the country. But five months later, reality is beginning to sink in and the outlook is far less rosy.

Prime Minister Theresa May has faced a series of setbacks in delivering on her promise that “Brexit means Brexit and we are going to make a success of it.” There has been a court challenge that threatens to unwind her Brexit plans; a leaked report highlighting cabinet turmoil; and ill-timed comments from some cabinet ministers that has infuriated EU officials.

On Wednesday, more storm clouds appeared. Chancellor of the Exchequer Philip Hammond released a decidedly gloomy assessment of the economy and the government’s finances, leading to more questions about just how prepared the country is for withdrawing from the EU.

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In his annual Autumn Statement, a kind of mini-budget, Mr. Hammond acknowledged the government was grappling with uncertain times and he said that because of Brexit, the economy would slow next year, unemployment will rise and business investment will plunge. He based his comments on a 270-page analysis by the Office for Budgetary Responsibility, an independent agency that acts as a watchdog over government finances. The OBR concluded that in the near term the decision to pull out of the EU will constrain nvestment, push up inflation, lower real incomes and crimp consumer spending. “The unprecedented nature of the decision to leave the EU has increased uncertainty around the outlook for the UK economy,” he said.

To ease the impact of Brexit, Mr. Hammond has increased spending on roads, trains, housing, technology, research and even museums. There are also plans for a new government-savings bond, a £23-billion ($38-billion) National Productivity Investment Fund and several measures aimed at so called JAMs, or people who are “just about managing,” including more child care and a boost to the minimum wage. And he’s cutting some taxes, including the corporate tax rate, which will fall from 20 per cent to 17 per cent by 2020.

All of that spending means the government is abandoning its plan to balance the budget by 2020. Instead of a surplus in 2020, the government will now have a deficit of £22-billion and it has no target date for when the deficit will be eliminated. Total spending will increase by £122-billion over five years, putting more strain on the government’s finances and the economy.

“When circumstances change you have to change with them,” said Simon Kirby, a Conservative Member of Parliament who is Economic Secretary to the Treasury, a junior cabinet post. Mr. Kirby called the move away from a balanced budget a “reprofiling of our debt and deficit situation.” And he put a brave face on the economic forecast, saying it could be wrong.

“For what it’s worth, I’m very positive about the opportunities ahead,” he said. “I would hope that we do better than the forecast. But we have to create head room to deal with our exit from the EU.”

Others were less optimistic.

“Chancellor Philip Hammond has delivered an Autumn Budget Statement that highlights the damage that Brexit will likely cause,” said James Knightley, a senior economist at ING Bank.

Ms. May is still determined to push ahead with her Brexit agenda and she has shot down critics who say the government is disorganized and not forthcoming about what it wants in a new deal with the EU. But she is facing mounting criticism.

A leaked report by consultants at Deloitte cited infighting among cabinet ministers over Brexit and added that the government had no coherent strategy. Government ministers, including Foreign Minister Boris Johnson, have come under fire for given conflicting statements about Britain’s intentions, with some saying the country wants a complete break with the EU and others saying the country still wants access to the EU single market in some fashion.

MPs have also been emboldened by a court ruling that said Ms. May cannot trigger the exit mechanism, known as Article 50 of the Lisbon Treaty, without a vote in parliament. Most MPs opposed Brexit and the ruling has given them a chance to frustrate the process and demand more information from Ms. May. The government has appealed the court ruling to the Supreme Court, but if it is upheld, Ms. May’s plan of invoking Article 50 before April could be in jeopardy.

On Wednesday, Ms. May insisted her time frame won’t change. And she defended her lack of transparency saying “it is absolutely right at this stage that we do not set out every piece of our negotiating strategy, because that would be the best way to get the worst possible deal for Britain.”

She also fired back at MPs seeking to delay Brexit. “There must be no second referendum, no attempt to weasel out of this. This is the government that will deliver on the vote of the British people,” she said.

But there was a small sign this week of just how difficult Brexit could become. On Tuesday, Britain’s Secretary of State for Exiting the EU David Davis flew to Brussels to meet the EU’s Brexit negotiator, Guy Verhofstadt, for the first time. Mr. Verhofstadt greeted Mr. Davis with a smile and said: “Welcome to hell.”

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