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10 October 2019

Boris Johnson warned against big tax cuts as UK faces no-deal shock

The Institute for Fiscal Studies (IFS) said that the budget deficit is already set to exceed GBP 50 billion next year and that could double if Britain crashes out of the European Union without a transition deal.


UK Prime Minister Boris Johnson was urged not to press ahead with his plans for big tax cuts amid warnings that a no-deal Brexit could blow a GBP 100 billion ($123 billion) hole in the public finances, reported Bloomberg.

Additionally, Citi said that even with a substantial easing of monetary and fiscal policy, the British economy is facing two years of stagnation under a no-deal Brexit scenario.

Paul Johnson, the 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.”

With a possible general election looming, Boris is offering voters an end to austerity with tens of billions of pounds of spending increases and cuts to payroll taxes.

The IFS said that plans announced by Chancellor Sajid Javid last month mean that day-to-spending on the National Health Service and policing are now higher than those proposed by the opposition Labour Party before the 2017 election.

Citi estimated that Britain has lost out almost entirely on the bout of global growth since 2016, with output around GBP 60 billion lower than it would have been had voters chosen to stay in the EU. A further delay to Brexit would extend the uncertainty weighing on investment and growth, it said.

Britain is on course to break its key fiscal rule, which requires structural borrowing to be less than two per cent of GDP in 2020-21, said IFS.

 A fiscal stimulus to help the economy weather a no-deal Brexit would see debt climb to almost 90 per cent of national income for the first time since the mid-1960s, raising the prospect of sharp cutbacks to spending in future years.





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