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| UK Treasury rejects OECD's call for second Brexit referendum | UK Treasury rejects OECD's call for second Brexit referendum |
| (35 minutes later) | |
| The Treasury has flatly rejected calls by the west’s leading economic thinktank for a second EU referendum after the Organisation for Economic Cooperation and Development said a second poll would significantly benefit the economy. | |
| “We are leaving the EU and there will not be a second referendum,” the Treasury said in a terse statement that reflected the government’s unhappiness with the OECD’s intervention. | |
| The Paris-based thinktank, which has 34 rich country members, said it would revise the gloomy forecasts it made in its annual health check were Britain to stay in the EU. | |
| “In case Brexit gets reversed by political decision (change of majority, new referendum, etc), the positive impact on growth would be significant,” the report said. | |
| The chancellor, Philip Hammond, left a joint press conference with the OECD’s secretary general, Angel Gurría, without answering questions. | |
| Gurría insisted that the OECD respected the decision of the referendum and OECD sources sought to play down the “second referendum” call, saying it was merely sketching out alternative scenarios. | |
| The OECD, however, said that Britain must secure “the closest possible economic relationship” with the European Union after Brexit to prevent the economy suffering a long-term decline. | |
| The thinktank, which has predicted the UK’s growth rate will fall to 1% next year, said a “disorderly” exit from the EU single market and customs union in 2019 “would hurt trading relationships and reduce long-term growth”. | |
| Entering the debate over Brexit at a crucial stage in negotiations, the OECD added that steep falls in the UK’s productivity performance relative to other major economies allied with the failure of its export industries to grab a slice of expanding world trade have left it in a weak position to operate outside the EU. | Entering the debate over Brexit at a crucial stage in negotiations, the OECD added that steep falls in the UK’s productivity performance relative to other major economies allied with the failure of its export industries to grab a slice of expanding world trade have left it in a weak position to operate outside the EU. |
| The warning follows a week of shuttle diplomacy between London and Brussels. The UK government says it has gained a commitment from EU leaders to speed up talks, although there has been no progress in crucial areas, including the divorce bill. | The warning follows a week of shuttle diplomacy between London and Brussels. The UK government says it has gained a commitment from EU leaders to speed up talks, although there has been no progress in crucial areas, including the divorce bill. |
| EU leaders have made it clear that agreements on the divorce bill, the border with Northern Ireland and the rights of EU citizens living in the UK need to be reached before they are prepared to discuss a trade deal. With time running short before the March 2019 deadline, the OECD said it was likely that the loss of “frictionless trade with the EU would prove damaging to the economy’s health”. | EU leaders have made it clear that agreements on the divorce bill, the border with Northern Ireland and the rights of EU citizens living in the UK need to be reached before they are prepared to discuss a trade deal. With time running short before the March 2019 deadline, the OECD said it was likely that the loss of “frictionless trade with the EU would prove damaging to the economy’s health”. |
| Britain wants to discuss its future trading relationship with the EU because 44% of UK exports go to, and 53% of imports come from, the EU 27 countries. Post-Brexit conditions of trade could, therefore, have a major impact on Britain’s economy. | Britain wants to discuss its future trading relationship with the EU because 44% of UK exports go to, and 53% of imports come from, the EU 27 countries. Post-Brexit conditions of trade could, therefore, have a major impact on Britain’s economy. |
| The World Bank estimates UK trade with the EU in goods and services could fall by 50% and 62% respectively if no trade deal is agreed after Brexit, against 12% and 16% if the UK stays in the single market through a Norway-style agreement. | The World Bank estimates UK trade with the EU in goods and services could fall by 50% and 62% respectively if no trade deal is agreed after Brexit, against 12% and 16% if the UK stays in the single market through a Norway-style agreement. |
| Clean Brexit campaigners say the shortfall can be offset through more trade with non-EU countries, but those who argue the UK must retain close links with the single market doubt this, certainly anytime soon. Both groups want certainty. | Clean Brexit campaigners say the shortfall can be offset through more trade with non-EU countries, but those who argue the UK must retain close links with the single market doubt this, certainly anytime soon. Both groups want certainty. |
| However, the EU27’s negotiating guidelines for the two-year Brexit talks say discussion of the “framework” of a future relationship can only take place in phase two of the talks, once “sufficient progress” has been made on the separation phase and particularly the UK’s exit bill. | However, the EU27’s negotiating guidelines for the two-year Brexit talks say discussion of the “framework” of a future relationship can only take place in phase two of the talks, once “sufficient progress” has been made on the separation phase and particularly the UK’s exit bill. |
| Officials at the OECD have adopted one of the gloomiest outlooks for the British economy with an assumption that a trade deal with the EU would take four years to negotiate following Brexit, leading to further uncertainty and lower growth. | |
| “In the absence of a free-trade agreement in 2019, switching to World Trade Organisation (WTO) rules would cut UK growth by 1.5 percentage point that year. This assumption underpins the projections in this survey, given the large uncertainty about the outcome of negotiations,” it said. | “In the absence of a free-trade agreement in 2019, switching to World Trade Organisation (WTO) rules would cut UK growth by 1.5 percentage point that year. This assumption underpins the projections in this survey, given the large uncertainty about the outcome of negotiations,” it said. |
| The UK should eventually conclude a free trade deal with the European Union by 2023, it predicts. | The UK should eventually conclude a free trade deal with the European Union by 2023, it predicts. |
| “However, putting in place a transition period of a few years after 2019 during which most of current trade arrangements with the European Union would be maintained until a new agreement is found would reduce the economic consequences in the run-up to Brexit and right after.” | “However, putting in place a transition period of a few years after 2019 during which most of current trade arrangements with the European Union would be maintained until a new agreement is found would reduce the economic consequences in the run-up to Brexit and right after.” |
| To offset some of the damage, the OECD urged the British chancellor, Philip Hammond, to spend spare funds on identifying ways to improve productivity, which measures the output per hour of an individual worker, by enhancing the skills of low-income workers. | To offset some of the damage, the OECD urged the British chancellor, Philip Hammond, to spend spare funds on identifying ways to improve productivity, which measures the output per hour of an individual worker, by enhancing the skills of low-income workers. |
| On the possibility that the UK might change course altogether, it said: “In case Brexit gets reversed by political decision (change of majority, new referendum, etc), the positive impact on growth would be significant.” | On the possibility that the UK might change course altogether, it said: “In case Brexit gets reversed by political decision (change of majority, new referendum, etc), the positive impact on growth would be significant.” |
| The report also called on the chancellor to revive his plans to increase income tax on the self-employed, who now make up 15% of the workforce and pay less tax than workers in full-time employment. | The report also called on the chancellor to revive his plans to increase income tax on the self-employed, who now make up 15% of the workforce and pay less tax than workers in full-time employment. |
| Hammond has signalled that he plans to free up further funds by increasing taxes on older workers and restrict benefits enjoyed by wealthier retired people. | Hammond has signalled that he plans to free up further funds by increasing taxes on older workers and restrict benefits enjoyed by wealthier retired people. |
| The OECD said it supported him in this aim and specifically backed ending the triple lock on state pension rises, arguing that the state pension should only rise in line with average earnings. | The OECD said it supported him in this aim and specifically backed ending the triple lock on state pension rises, arguing that the state pension should only rise in line with average earnings. |
| It praised the government’s efforts to improve technical training through an expansion of apprenticeships and focus on infrastructure projects that can be delivered quickly. | It praised the government’s efforts to improve technical training through an expansion of apprenticeships and focus on infrastructure projects that can be delivered quickly. |
| But the OECD reserved a warning for the Bank of England, which it said must guard against raising interest rates during a period of low growth, declining rates of productivity and while the economy remained vulnerable to Brexit. It said Threadneedle Street should “look through” the current spike in inflation and maintain a loose monetary policy. | But the OECD reserved a warning for the Bank of England, which it said must guard against raising interest rates during a period of low growth, declining rates of productivity and while the economy remained vulnerable to Brexit. It said Threadneedle Street should “look through” the current spike in inflation and maintain a loose monetary policy. |
| The Treasury said: “Increasing productivity is a key priority for this government, so that we can build on our record employment levels and improve people’s quality of life. | The Treasury said: “Increasing productivity is a key priority for this government, so that we can build on our record employment levels and improve people’s quality of life. |
| “Today, the OECD has recognised the importance of our £23bn national productivity investment fund, which will improve our country’s infrastructure, increase research and development and build more houses. In addition, our reforms to technical education and our ambitious industrial strategy will also help to deliver an economy that works for everyone.” | “Today, the OECD has recognised the importance of our £23bn national productivity investment fund, which will improve our country’s infrastructure, increase research and development and build more houses. In addition, our reforms to technical education and our ambitious industrial strategy will also help to deliver an economy that works for everyone.” |