LONDON (Reuters) – British finance minister Philip Hammond is prone to warn no-deal Brexit would hit the general public funds and forestall an finish to austerity when he delivers his annual price range subsequent week, a think-tank mentioned.
Britain’s Chancellor of the Exchequer Philip Hammond arrives at Downing Street in London, Britain, October 15, 2018. REUTERS/Peter Nicholls
By distinction, a easy transition from the European Union would give Hammond extra room for borrowing and spending, the National Institute of Economic and Social Research mentioned.
Hammond, who routinely angers Brexit supporters by calling for Britain to stay near the EU, will ship a price range plan on Monday.
He should juggle Prime Minister Theresa May’s promise to finish austerity along with his drive to scrub up excessive ranges of public debt, all in opposition to the backdrop of big uncertainty about Britain’s exit from the EU in simply over 5 months’ time.
Amit Kara, a NIESR economist, mentioned better-than-expected development in Britain’s economic system this 12 months — albeit nonetheless sluggish — and progress in closing the price range deficit meant Hammond can already fund May’s plan for extra spending on the well being service.
A easy Brexit in March would imply increased financial development and tax revenues, permitting for extra will increase in spending.
“If we have a hard Brexit on the other hand, then we lose a lot of this space,” Kara mentioned.
A no-deal Brexit would push Britain’s price range deficit up from an estimated 1.7 p.c of gross home product this 12 months to 2.7 p.c in two years’ time, whereas public sector internet debt would rise barely to round 86 p.c of GDP earlier than falling solely slowly by the mid-2020s, he mentioned.
Hammond has set himself a goal of conserving the price range deficit — adjusted for swings within the economic system — beneath 2 p.c of GDP by 2020/21 and to chop debt as a share of financial output.
NIESR mentioned Britain’s economic system would develop by 1.four and 1.9 p.c in 2018 and 2019 respectively if a Brexit deal is finished.
But development would sluggish to simply zero.three p.c in 2019 and 2020 with no deal, it mentioned.
NIESR additionally mentioned Hammond would ultimately want to think about a variety of tax will increase to assist pay for increased public spending after a decade of deep spending cuts for a lot of providers.
Writing by William Schomberg, modifying by Andy Bruce