A report published Tuesday by the Institute for Fiscal Studies (IFS) says the government faces a giant budget hole if a hard Brexit hinders growth and sinks tax revenues. The think-tank’s forecast of a £14.9bn deficit by 2019-20 assumes the UK will be paying no EU budget contributions at that point. With that far from guaranteed, the prediction could be generous.
The IFS report forecasts that by that fiscal year, tax revenues will be £31bn lower than predicted by former chancellor George Osborne as the economy slows. This would be partially offset by the net £6bn the UK would save by halting all budget payments to the European Union, leaving a £25bn “black hole” destined to be filled by borrowing.
In his March budget speech, Osborne said: “In 2019-20 Britain is set to have a surplus of £10.4 billion”. The IFS says this will now be a £14.9bn deficit.
It follows projections from the National Institute of Economic and Social Research (NIESR) that consumer price inflation will hit 4% in the second half of next year. NIESR also anticipated that UK GDP growth would dip from 2% this year to 1.4% in 2017.
Ahead of his Autumn statement on November 23rd, chancellor Philip Hammond has already abandoned Osborne’s aim of running a surplus by 2019-20, and promised a flexible fiscal framework – allowing for a potential stimulus package if growth plunges.
These indicators lend legitimacy to the fears outlined by Osborne, the Treasury, the Bank of England and the International Monetary Fund during the referendum campaign, roundly dismissed at the time by Brexiters as “Project Fear”.
Leading Brexit exponents Michael Gove, Boris Johnson and Gisela Stuart said during the campaign: “the government should use some of the billions saved from leaving the EU to give at least a £100m per week cash infusion to the NHS”. The absence of an immediate recession has led tabloids such as the Express to declare that the economy is “booming”.
The IFS’ predictions douse their enthusiasm and rest on two assumptions that may not come to pass. First, that all of Osborne’s spending cuts, including £3.5bn of departmental “efficiencies”, will be delivered. The creation by Theresa May of the Departments for International Trade and Exiting the European Union – with the accompanying staff and administrative costs – could throw this off target.
Second, that the UK will contribute nothing to the EU’s budget after Brexit. The Financial Times estimated that the UK could face a €20bn divorce bill for ongoing liabilities. And Theresa May has not ruled out further payments into the EU budget to secure, for example, privileged access to the single market.
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This piece was corrected on Nov. 13 to change €20m to €20bn.
Edited by Paul Taylor
there is a typo at the end of the article : the estimated divorce costs by the FT are €20+ BILLIONS (not millions)
and actually, there are significant items considered positively, with an equally estimated divorce settlement for unpaid commitments and projects bringing that sum north of €35 billions (in case of acrimonious talks)
you can be sure that no future security and trade relationships with the EU will be forthcoming until the UK pay its dues (especially considering that many programs are for investment in Eastern Europe)
This article is full of smudged doublespeak I cannot take it seriously, why use phrases such as ‘lends legitimacy’ ‘giant budget hole’ and such. How about some plain English ? Predictions of any kind are difficult in the extreme, I am a remainer but it is clear to me that Gove and others have no clue what is going to happen or what would have happened if remain had won, too few facts or context, too much spin, even the IFS uses some very silly assumptions at times (one wonders if they are being deliberately obtuse) I suggest dialling down the rhetoric and turn up the dialectic, I.e. speak more plainly….