Watchdog slaps down May’s talk of ‘Brexit dividend’ for the NHS

Theresa May’s “Brexit dividend” was dismissed by the Government’s fiscal watchdog today as it warned over the impact of her health spending splurge on the public finances.

The woes of the Prime Minister, facing the collapse of the recently struck Chequers compromise on trade with the EU this week, were piled higher by the Office for Budget Responsibility’s latest report.

It warned of an “unsustainable upward trajectory” in the national debt burden.

May said last month an extra £20.5 billion for the NHS by 2023-24 would be funded by a Brexit dividend, to widespread scorn from most experts who predict the UK will be damaged by leaving the EU. The OBR added today: “As regards the ‘Brexit dividend’, our provisional analysis suggests that Brexit is more likely to weaken the public finances than strengthen them over the medium term, thanks to its likely effect on the economy and tax revenues.”

The watchdog highlighted savings from the EU budget contributions which the UK would no longer have to make in its long-term snapshot of the public finances.

But its analysis adds that after a £7.5 billion payment to Brussels under the withdrawal agreement there would be around £5.8 billion to be spent elsewhere.

“In principle this could cover slightly less than 30% of the cost of health package in that year, but this does not take into account other calls on these potential savings.”

It adds: “We assume in this report that the extra health spending adds to total spending and borrowing rather than being absorbed in whole or part elsewhere.”

The extra unfunded health spending promised by the Government comes on top of further rising pressure on health spending, thanks to factors such as an ageing population and more chronic health conditions.

The OBR added that the long-term outlook for the public finances had worsened since its last study in January 2017, thanks to the extra health spending and demographic pressures.

It said: “If the higher health spending were to be fully financed by tax rises or cuts in other spending, the long-term outlook for the public finances would be little changed.”

Public spending could rise by an extra £172.8 billion a year in today’s terms by 2067-68, it added.

Workers' rate tip

More workers diving into the labour market today gave the Bank of England more ammunition to raise interest rates next month.

The latest jobs figures showed a 137,000 rise in employment in the quarter to May, driven largely by an 86,000 fall in so-called inactive people not looking for work.

The unemployment rate was static at 4.2% but in May alone it fell to 4%. “It’s clear that the labour market is still growing strongly,” the Office for National Statistics’ Matt Hughes said.

Regular pay growth eased slightly to 2.7% although vacancies are at a record high, suggesting pay pressure could rise again.