Face of Nation : The think tank said borrowing would likely climb to £100bn and total debt would soar to 90% of national income. This would mean the UK is borrowing almost as much as the country earns in a year. “The government is now adrift without any effective fiscal anchor,” said IFS director Paul Johnson.
“Given the extraordinary level of uncertainty and risks facing the economy and public finances, it should not be looking to offer further permanent overall tax giveaways in any forthcoming Budget.
“In the case of a no-deal Brexit, though, it should be implementing carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy.” But even before the cost of a possible no-deal Brexit is factored in, the think tank said the government is set to break its own spending rules.
Borrowing was expected to top £50bn next year, or 2.3% of national income, the IFS forecast. The think tank said day-to-day spending looked set to approach levels that were expected from Labour’s 2017 manifesto, which was likely to cost taxpayers more than plans laid out by the Conservative party at the time.
An HM Treasury spokesperson said: “September’s spending round supported the people’s priorities of health, education and the police within the existing fiscal rules, as we said it would be.
“Beyond that, the chancellor has already said that we will be reviewing the fiscal framework as we turn the page on austerity. In so doing, we will retain a fiscal anchor to public spending so that decisions are taken with a view to the long-term sustainability of the public finances.”
These are the new forecasts of the independent Institute for Fiscal Studies for how a no-deal Brexit is likely to drench the UK’s public finances in red ink. Only on the extraordinary scale of the fiscal collapse of the 2008 financial crisis are these numbers modest.
On any ordinary scale they do matter – an annual deficit heading back up towards £100bn, and national debt closer to 90% of GDP for the first time in half a century.
And all this comes at a time where the institute concludes that the government is no longer taking its own fiscal rules seriously, borrowing more to spend more on public services even as the Treasury approaches its self-imposed limits.
However, even with “substantial” government spending, it said it expects the UK economy to flatline for two years following no-deal. It warned that a rise in public spending in 2020 would likely be followed by “another bust” as the government would have to deal with “the consequences of a smaller economy and higher debt for funding public services”.
Mr Johnson said that it would be “crucial” that government spending programmes were temporary. “An economy that turns out smaller than expected can, in the long run, support less public spending than expected, not more,” he said.
Christian Schulz, the chief UK economist at Citi, which contributed to the report, said the country’s economy has already shrunk by around £60bn since the EU referendum in 2016.
“Business investment is up to 20% lower than it would otherwise have been, hurting productivity and wage growth,” he said. However, Mr Schulz added that a further Brexit delay would create more uncertainty, denting investment and leaving growth at around 1% a year. “From a growth perspective, a Brexit deal is a little better, leaving growth at 1.5%, but it would leave no chance of Brexit being cancelled,” he said.
