A new report highlights just how damaging Brexit has already been to the economy as the government operates with ‘no effective fiscal rules’.
The Institute for Fiscal Studies (IFS) has released the Green Budget, a damning report which shows how hard the UK has been hit since the referendum – and how much harder it will be if we leave without a deal.
The Green Budget says:
– National income is already between £55 and £65 billion lower than it would have been without the referendum result. “The UK has missed out almost entirely on a bout of global growth since 2016,” said the report, with UK growth weaker than other G7 countries.
– Government borrowing is set to break the chancellor’s own limit by next year, with borrowing set to hit £50 billion or 2.3% of national income.
– But in the case of even a “relatively benign” no-deal Brexit, that figure will balloon to £100 billion – or four per cent of national income.
– Brexit uncertainty may have resulted in a “hugely damaging” 15-20% hit to private sector investment compared to what it would have been without the referendum result. “We have seen the most sustained fall in business investment outside of a recession,” said the report.
– A no-deal Brexit would likely see two years of zero growth and would leave the economy 2.5% smaller than otherwise – even compared to a situation of continued Brexit delay.
– “Remaining in the EU would be best for growth.”
The IFS, which scores five stars for transparency from think tank watchdog Who Funds You?, said “the government is in practice operating with no effective fiscal rules at present”, adding that it is probably right to do so given the present uncertainty.
In such a climate, Boris Johnson’s proposed tax cuts would do even more damage, and the report cautiously recommends a fiscal stimulus – though even this would “likely be followed by another bust” and would result in the highest debt as a proportion of national income – 90% – since the mid-1960s.
Paul Johnson, IFS Director said: “The government is now adrift without any effective fiscal anchor.
“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.”
Neither Conservative nor Labour spending and tax proposals effectively address the looming health and social care costs of an ageing population, said the report’s authors.
But public spending as a share of national income is set to increase all the same to 2006-2007 levels. “This will at least pause, but certainly will not undo across the board, the cuts seen over the current decade,” said the report.
Shadow chancellor John McDonnell said: “The government’s agenda for tax cuts will be simply robbing our public services to put money into the pockets of the wealthiest in society.
“The IFS has made it clear there is no economic rationale for the Conservatives’ approach to the economy.
“And at the same time they are putting the whole of the economy at risk with a dangerous no deal Brexit.”
The New European has contacted the Treasury for comment.