“In the long run, Brexit has a greater impact (on the economy) than a pandemic,” Hughes said. According to him, leaving the EU “will reduce gross domestic product by about four percent in the long run.”
Commenting on the BBC, he added: “We believe that the impact of the pandemic will reduce this production (ie GDP) by another two percent.” GDP is a measure of the size of the economy.
“It’s very difficult for us at the moment,” Hughes said hours after his office revised its earlier forecast for this year’s value added tax (VAT) revenue, as a result of higher-than-expected inflation.
The Ministry of Finance will raise four billion pounds more than expected this year due to rising living costs. Next year and the year after, VAT revenues will be more than £ 9 billion higher due to rising prices.
Inflation “ends income growth”
The authority that oversees taxes and their use said it expects inflation to be 4.4 percent, more than double that tolerated by most central banks, including Britain’s. It will not fall to 2.1 percent until 2024.
The OBR therefore warned that the depreciation of the currency could reach “the highest rate recorded in the United Kingdom in the last thirty years”, ie since the 1970s. At that time, Britain was struggling with so-called stagflation, when the economy stagnated and inflation rose sharply.
The Think-tank Resolution Foundation therefore warned that inflation would “virtually stop revenue growth” next year and that a typical employee with an income of £ 29,000 may be worse off despite wage growth. These are expected to increase by 3.6 percent, other revenues by 1.5 percent.
A Labor source on Wednesday accused the government of benefiting from the crisis it had triggered through VAT revenues.
“This money basically comes from people in Britain who pay more because of rising (living) costs. The reason is the more frequent shortage of goods on the shelves and problems in the supply chain, which occurred because the government did not have a plan to address the shortage of skilled workers, “said an unnamed source, according to The Daily Telegraph.