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My Remainer's Diary Day 299

For 298 days I have kept my #Remainer's Diary on Facebook. Two nights ago my FB account became inaccessible without explanation. So I'm back on Blogger. 
Diary Day 299: the UK's Office of Budget Responsibility published its first Fiscal Risks Report, a 312-page tome, in accordance with a requirement introduced by Parliament in October 2015 that the OBR must produce a fiscal risks report at least once every two years. It is freely downloadable by anyone. 
Fiscal is a fancy word for pertaining to government finances. Derivation: 16th century, from Latin fiscālis concerning the state treasury, from fiscus public money, the public purse. It is about government income and spending. 
The Fiscal Risks Report refers to a wide range of "fiscal pressures", and says that the risks posed by Brexit "do not supplant the possible shocks and likely pressures that we have already discussed, but they could affect the likelihood and impact of many of them." 
It states that implications of agreements reached with the EU and other trading partners for the long-term growth of the UK economy are more important than the Brexit 'divorce bill'. The OBR calls the latter a "one-off hit" that "would not pose a big threat to fiscal sustainability". 
It refers to a number of Brexit-related uncertainties: - the effect on exports and imports; on productivity; on business investment; on migration; on specific sectors such as the financial sector (affected by rule changes) and the health and social care sectors (affected by changes in net migration). The Brexit process and "post-Brexit policy settings" that affect prospects for potential output growth via productivity or population growth "could have lasting effects on the public finances." 
It states: "If GDP and receipts grew just 0.1 percentage points more slowly than projected over the next 50 years, but spending growth was unchanged, the debt-to-GDP would end up around 50 percentage points higher." 
The Report states later on that 0.1% less productivity growth each year over 50 years would leave the economy 4.8% smaller than would otherwise be the case, equivalent to £97bn in today’s terms, and assuming a tax-to-GDP ratio of 37%, tax receipts £36bn lower in today’s terms.
The Report states: "Brexit is likely to pose a number of public spending challenges, some of which could represent risks to DELs" [departmental expenditure limits]. Such public spending challenges include: - the 'divorce bill' or financial settlement as part of the Brexit negotiations; matching funding to groups that currently get EU payments, such as farmers and researchers; setting up and running UK-specific regulators in areas where the UK leaves EU equivalents; preparing and carrying out Brexit negotiations and establishing new bilateral free-trade agreements with other countries; and support or compensation for specific companies or sectors adversely affected by the UK leaving the single market and customs union.
"The Government will also have to decide (and negotiate) whether to continue to make contributions to any EU schemes that it wishes to retain access to..." 
The Report says that with the budget deficit at 2% to 3% of GDP (only just back to its pre-financial crisis level), and with net debt above 85% of GDP the fiscal position is more vulnerable to shocks now than it was in 2007. That includes being more sensitive to interest rate rises and inflation. 
"The Government is still to some extent cushioned against interest rate movements by the long average maturity of outstanding gilts. But once the APF’s holdings are taken into account – which have swapped around a third of all fixed-coupon conventional gilts for floating rate central bank reserves – the true vulnerability to short-term interest rate movements is much greater. And with index-linked gilts now amounting to nearly 20 per cent of GDP, vulnerability to inflation risk has risen too." 
Opaque stuff. 
The APF is the Bank of England Asset Purchase Facility Fund Limited, a subsidiary of the Bank of England set up in 2009 to implement the Government's "quantitative easing" policy. This new policy has been continued ever since and was stepped up last August with measures the Bank of England put in place after the shock referendum result. The APF's annual report and accounts were published last week, by the way, and summarise it's history and what it does. 
The sums involved are eye-watering. The BoE website says that as at 12th July the APF held £434.961bn in gilt purchases, £9.991bn in Corporate Bond purchases and £75.489bn in loans made through the Term Funding Scheme. 
All transactions have been financed by the creation of central bank reserves. These reserves are electronic money. 
I suppose the OBR means the APF company has borrowed from the BoE at floating interest rates in order to buy fixed interest securities. The APF is protected by an indemnity from the Treasury: any financial losses as a result of the APF's activities are borne by the Treasury and any gains are owed to the Treasury. So if the BoE raises interest rates the APF's liabilities for interest go up. Hence the Government's vulnerability. 
In Brussels Mr Corbyn had lunch with Mr Barnier and gave him a football shirt. 
In Westminster the Government published a bill intended to disentangle the UK from 45 years of EEC/EU law. It is called a repeal bill but is actually a continuity and power grab bill. More, much more, on that anon. 
A British hereditary peer was sentenced to a 12-week prison term for racially aggravated threats to Gina Miller, the litigant who defeated the Government in the Supreme Court over Parliamentary sovereignty. 


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