look what happened to hitler and shudder, britain, because that’s what you’re facing

No-deal Brexit would ‘push national debt to levels last seen in 60s’
Richard Partington, Groon, Oct 8 2019

Emergency tax cuts and higher public spending to offset the impact of a no-deal Brexit would send government debt to its highest level in more than half a century, according to Britain’s leading experts on the public finances. The Institute for Fiscal Studies said the scale of the government response required to firefight a flatlining economy in the event of a disorderly departure from the EU would come with a hefty price tag for the public purse. In a warning to Boris Johnson as his Brexit plan risked unravelling in the face of stiff opposition at home and abroad, the think-tank said government borrowing was already set to more than double next year regardless of the outcome of negotiations with Brussels. It also said the national debt, the sum total of all borrowing accumulated by the British state, would hit almost 90% of GDP if Britain crashed out of the EU without a deal, its highest level since the mid-1960s. Coming as the prime minister increases funding for healthcare, schools and police, the IFS said a mini-boom in public spending would be followed by another bust because the government would likely struggle to handle the impact of no-deal Brexit, which would shrink the size of the economy and cause debt levels to rise. In a warning that a new wave of austerity could be introduced in the future to limit further debt increases, Paul Johnson, the director of the IFS, said:

You could well be on an upward spiral of debt and deficit, and in a world in which we have to go through another period of austerity to undo it.

Against a backdrop of mounting speculation over possible tax giveaways ahead of an election, including potential for a cut in fuel duty for motorists, Paul Johnson warned the prime minister that such moves would be dangerous given the heightened level of uncertainty facing the economy and the future state of the public finances. he added:

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.

In analysis ahead of a government budget this autumn, the IFS said the deficit, the shortfall between government spending and income from taxes, was already on track to rise to more than £50b next year from £29.3b currently, as a result of changes in the treatment of student loans in the national accounts and as Boris Johnson ramps up public spending. However, it said no-deal Brexit could cause economic growth to flatline in 2020-21, even if the Bank of England cut interest rates and the government stepped in with emergency tax cuts and higher spending. Describing the scenario emerging from a “relatively benign” no-deal Brexit, the IFS said the budget deficit would rise to almost £100b or 4% of GDP by 2021-22, reversing the progress over the past decade of producing gradually smaller deficits. The budget deficit peaked in 2009-10 after the banking crisis at almost £160b, before gradually falling as David Cameron and George Osborne cut spending using a policy of austerity to reduce it. The government’s tax and spending watchdog, the Office for Budget Responsibility, forecast this year that the deficit should fall to £21.2b in 2020-21. However, it made its estimate in March on the basis of a smooth Brexit deal. Successive budget deficits have caused the national debt to rise to about £1.8t, or about 80% of GDP, more than double the level before the financial crisis. Although economists debate how sustainable such debt levels are, the IFS said that keeping such a debt level may prevent the country from raising spending on public services in future. After a decade of austerity the IFS said the government’s near-£14b spending plans outlined by Sajid Javid, the chancellor, at last month’s spending round for 2020-21 would only return public funding for services as a percentage of national income to levels seen in 2006-07. It said the plans for day-to-day spending next year had taken Conservative policy close to offering the same level of funding for public services implied by Labour’s 2017 manifesto. The IFS said the government had in effect abandoned the former chancellor Philip Hammond’s borrowing rules, including a Conservative manifesto pledge to eliminate the deficit entirely by the mid-2020s. A spox for the Treasury Chancellor of the Exchequer 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.

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