LONDON (Alliance News) – UK Chancellor of the Exchequer Philip Hammond is facing an GBP84 billion black hole in public finances fuelled by Brexit in next month’s mini-budget, a think tank has warned.
Analysis of projections by independent forecasters shows the economy is expected to be GBP60 billion smaller in 2020 than was expected just before the referendum, the Resolution Foundation said.
It suggests that earnings will be around GBP700 a year lower than had been predicted by the end of the parliament and around 600,000 more people will be out of work.
In its report, the think tank says Hammond is likely to face an GBP84 billion borrowing gap over the next five years when he delivers the autumn statement on November 23.
The government has ditched former Chancellor George Osborne’s target for achieving a budget surplus by 2020.
Delaying by one year while still meeting Tory aims to develop an industrial strategy, help ordinary families and meet manifesto promises on income tax reforms, would mean billions in tax rises or spending cuts, the think tank said.
Going for a softer target by switching to a current budget balance in 2019-20 will give Hammond leeway to meet the plans but would mean “significantly higher” borrowing for years to come, it added.
Matt Whittaker, chief economist at the Resolution Foundation, said: “Despite the long-term impact of Brexit remaining very uncertain at this stage, there is a strong consensus among economists that post-referendum uncertainty will lead to deterioration in the public finances, which were coming in below expectation even before the referendum.”
“We won’t know the OBR’s verdict until November 23 but our analysis shows that the Chancellor may face a new GBP84 billion borrowing black hole and the prospect of breaking the fiscal rules inherited from his predecessor.”
“Rather than announcing very significant further tax rises or spending cuts in the face of renewed economic headwinds, the Chancellor is right therefore to press the fiscal reset button and set a new economic course for the remainder of the parliament,” Whittaker said.
“The good news for Philip Hammond is that by softening his fiscal target he has significant political and economic room for manoeuvre.”
“The leeway created by a new set of fiscal rules could afford the Chancellor the opportunity to make his mark on two key themes of the new government – boosting investment and helping ‘just managing families’ by reversing the social security cuts that are set to squeeze their incomes.”
“But the trade-off for this approach is significantly higher borrowing in the coming years. The Chancellor will need to decide if that is a price he is prepared to pay for adjusting to new economic times and setting out a direction for the new government,” Whittaker.
Rebecca Long-Bailey, shadow chief secretary to the Treasury, said: “The Resolution Foundation report comes after yesterday’s revelation that Treasury officials are already warning of a GBP16 billion borrowing overshoot based on data from before the referendum, which comes on top of the GBP7 billion black hole in 2020 left by George Osborne’s car crash Budget earlier this year.”
“It’s time for the Chancellor to come clean about the damage the Tories have done to our economy over the last six years. We were already in a fragile state before Brexit and now their shambolic handling of it is further weakening our economy.”
“Labour’s calls for increased investment is underpinned by our Fiscal Credibility Rule that would balance the current budget within five years.”
A Treasury spokesman said: “The Chancellor has been clear that while the deficit has been cut, it is still too high. The government is committed to balancing the books over a sensible period of time, in a way that allows space to support the economy.”
By Sam Lister, Press Association Political Correspondent
Source: Press Association
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