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George Osborne says Treasury is planning for Brexit George Osborne says Treasury is planning for Brexit
(about 1 hour later)
George Osborne has admitted for the first time that the Treasury and the Bank of England are carrying out detailed contingency planning to mitigate the impact of a vote to leave the European Union on Britain’s financial stability. George Osborne has conceded for the first time that the Treasury and the Bank of England are carrying out detailed contingency planning to prevent a vote to leave the European Union unleashing a financial crisis.
Appearing before the Treasury select committee of backbench MPs, the chancellor said there would be “very significant financial volatility” if voters chose to leave the EU in the 23 June referendum, which would push up interest rates and make it harder for borrowers to get loans. Appearing before the Treasury select committee of backbench MPs, the chancellor said there would be “very significant financial volatility” if voters chose to leave the EU in the 23 June referendum, which would push up interest rates and tighten credit conditions – making it harder for borrowers to get loans.
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“The Bank of England and the Treasury are doing a serious amount of contingency planning, for the impact on financial stability of a vote to leave,” the chancellor said. Downing Street had previously insisted that no such planning was taking place for the policies the government would adopt in the event of Brexit. Osborne added that contingency planning could “mitigate” but not eliminate the potential risks. “The Bank of England and the Treasury are doing a serious amount of contingency planning for the impact on financial stability of a vote to leave,” the chancellor said.
The prime minister’s spokesman later said the Treasury was simply looking at the risks to financial stability – a responsibility it shares with the Bank of England – not laying policy plans. The Bank’s governor, Mark Carney, has said he believes Brexit poses the biggest risk to Britain’s financial stability in the short term. Downing Street had previously insisted civil servants were not involved in drawing up policies the government would adopt in the event of Brexit. But Osborne said the Treasury was working with Threadneedle Street to “mitigate” the potential risks – though he stressed they could not be eliminated.
The chancellor also defended the Treasury’s claim, in its recent report about Brexit, that the costs in terms of lost economic output would be £4,300 per household. The prime minister’s spokesman later said the Treasury was simply looking at the risks to financial stability – a responsibility it shares with the Bank of England – not laying out policy plans. The Bank’s governor, Mark Carney, has said he believes Brexit poses the biggest risk to Britain’s financial stability in the short term.
Andrew Tyrie, the committee’s chair, said the estimates had an “arbitrary air of precision”, and the Conservative backbencher Jacob Rees-Mogg asked whether, rather than allow the independent Office for Budget Responsibility to make the forecasts, Osborne had “taken back control so that you can fiddle the figures”. The Bank had already announced that it is prepared to make massive amounts of liquidity available to the financial sector before and after the vote in order to avoid financial markets freezing up.
The chancellor robustly defended the Treasury’s claim, in its recent report about the consequences of Brexit, that the costs in terms of lost economic output would be £4,300 per household.
Andrew Tyrie, the committee’s chair, said the estimates had an “arbitrary air of precision”, and the Eurosceptic Conservative backbencher Jacob Rees-Mogg asked whether, rather than allow the independent Office for Budget Responsibility to make the forecasts, Osborne had “taken back control so that you can fiddle the figures”.
But the chancellor insisted the £4,300 figure was the central estimate in a possible range, based on conservative assumptions. “I think it’s the job of the finance minister of the country to communicate the consequences of the decision the people may take,” he insisted.But the chancellor insisted the £4,300 figure was the central estimate in a possible range, based on conservative assumptions. “I think it’s the job of the finance minister of the country to communicate the consequences of the decision the people may take,” he insisted.
Osborne said while there were claims and counter-claims on both sides of the debate about Britain’s future in the EU, the weight of evidence was on the remain side. Osborne said there were claims and counter-claims on both sides of the debate about Britain’s future in the EU, but the weight of evidence was on the remain side.
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“In the interests of balance, sometimes equal airtime is given to each side,” he said, but the majority of experts, including the International Monetary Fund and the Bank of England, believed leaving would “make the country poorer, and it would make the individuals in the country poorer”.“In the interests of balance, sometimes equal airtime is given to each side,” he said, but the majority of experts, including the International Monetary Fund and the Bank of England, believed leaving would “make the country poorer, and it would make the individuals in the country poorer”.
“It is important in this debate to look at the weight of the evidence,” he said. His response underlined the remain campaign’s approach, closely coordinated by Downing Street, which has been to marshal a chorus of senior voices to warn about the risks of leaving. He said: “It is important in this debate to look at the weight of the evidence.” His response underlined the remain campaign’s approach, closely coordinated by Downing Street, which has been to marshal a chorus of senior voices to warn about the risks of leaving, raising fears about matters ranging from Britain’s ability to tackle terrorism to the cost of food.
Tyrie asked Osborne whether the remain campaign had tarnished its own argument with this approach, with David Cameron even suggesting peace in Europe could be undermined if Britain left. Tyrie asked Osborne whether the remain campaign had tarnished its own argument with this approach, with Cameron even suggesting peace in Europe could be undermined if Britain left.
But Osborne said: “I would say what we have done on the side of remain is to set out credible propositions for the very serious consequences for our country, were we to leave.”But Osborne said: “I would say what we have done on the side of remain is to set out credible propositions for the very serious consequences for our country, were we to leave.”
He added that the Treasury would offer more evidence about the short-term economic impact of Brexit – including on house prices and wages – in a second report in the coming days. He added that the hit to growth the Treasury expected in the event of a vote to leave the EU would have a knock-on effect on the public finances, as weaker output hit profits, wages and tax revenues.
Osborne said the Treasury would offer more evidence about the short-term economic impact of Brexit – including on house prices and wages – in a second report in the coming days.