Brexit has opened up an £84 billion black hole in the public finances that the Chancellor will have to make up with additional borrowing, analysts have warned.
A report by the independent think-tank the Resolution Foundation claims deteriorating forecasts for economic growth will leave the government with a deficit of £13bn in 2019-20, rather than the £10bn surplus predicted before the EU referendum.
Chancellor Philip Hammond delivers his prospectus for the UK economy in four weeks when gives his Autumn Statement. He has already signalled he will abandon George Osborne’s fiscal targets, rejecting further spending cuts and pledging “careful, targeted public investment in high value infrastructure”.
Matt Whittaker, chief economist at the Resolution Foundation, said the Chancellor was right to “press the fiscal reset button” and said Mr Hammond should target a balanced budget rather than a surplus.
“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,” Mr Whittaker said.
“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.”
Labour’s shadow chief secretary to the Treasury, Rebecca Long-Bailey, said: “The Resolution Foundation report comes after yesterday’s revelation that Treasury officials are already warning of a £16bn borrowing overshoot based on data from before the referendum, which comes on top of the £7 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.”