No-deal Brexit will push debt to highest level in half a century, warns think tank
Government accused of “recklessly endangering economy” after Institute of Fiscal Studies reveals Brexit has already cost economy tens of billions of pounds
Government debt is set to climb to its highest level since the 1960s even in the case of a “relatively benign” no-deal Brexit, according to the UK’s leading economic research institute, the Institute of Fiscal Studies (IFS).
Debt would reach 90 per cent of national income, fuelled by borrowing of around £100 billion, or four per cent of national income, leading the UK Government to breach its own rules on sustainable debt levels.
Boris Johnson’s government has made a series of eye-catching spending promises, but the IFS warned that this “mini-boom” in public spending would likely be followed by another bust, as the government struggled with a smaller economy and higher debt.
Paul Johnson, IFS director and an editor of the Green Budget, 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.”
The UK economy has already been dented by Brexit, with national income between 2.5 and three per cent lower (£55-£66bn) than it would have been without the EU referendum result, according to the think tank. “The UK has missed out almost entirely on a bout of global growth since 2016,” the report stated.
The SNP branded the UK’s Brexit plans “utterly shameful”.
The IFS Green Budget 2019 report noted that Brexit uncertainty had been “hugely damaging to private sector investment”, which may be as much as 15-20 per cent lower than it would have been if the UK had not voted to leave the EU, leaving UK business investment growth the lowest in the G7.
Considering different Brexit scenarios, it concluded that a continued delay to Brexit would perpetuate uncertainty and lead to very poor growth of around one per cent a year; securing a Brexit deal would lead to higher but still weak growth of around 1.5 per cent; a no-deal Brexit, even with a major monetary and fiscal response, would likely mean two years of zero growth and return to just 1.1 per cent growth in 2022; while remaining in the EU would be best for growth.
Johnson said: "Things have changed remarkably quickly in public finance land. Not only is every spending department about to see a budget increase, we have a Conservative government set to increase day-to-day spending on public services to a level far closer to what Labour promised in its 2017 manifesto than to what was implied by the Conservative manifesto.
"And just since March, we have moved from a position where there looked to be plenty of headroom against next year’s borrowing target to one where that target is now on course to be missed.”
The SNP’s economy spokesperson Kirsty Blackman MP said any form of Brexit would be “devastating for Scotland”. She said: “The Tory government is recklessly endangering Scotland’s economy with its catastrophic plans for an extreme Brexit.
“It is utterly shameful that people in Scotland are already billions of pounds poorer as a result of Brexit, before we have even left the EU - and despite Scotland voting overwhelmingly to remain.
“Scotland has been completely ignored by Westminster throughout the Brexit process and Boris Johnson’s plan to crash us out of the EU on 31st October would deal a body blow to Scotland’s economy - threatening a recession and risking 100,000 Scottish jobs.
“With Westminster failing Scotland so badly, it is clearer than ever that the only way to properly protect our interests and economy is to become an independent country.
“It is vital that opposition parties move to swiftly bring this Tory government down, secure an extension and call an election. The SNP will put Scotland’s opposition to Brexit and our right to choose our own future as an independent country at the heat of that contest.”