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Tuesday, October 08, 2019

No deal Brexit would break the bank

The Guardian reports on a warning from the Institute for Fiscal Studies (IFS) that 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:

In a warning to Boris Johnson as his Brexit plan risked unravelling in the face of stiff opposition at home and abroad, the thinktank 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.”

And we are already spending above our means:

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 £50bn next year from £29.3bn 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 £100bn 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 £160bn, 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 £21.2bn 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 £1.8tn, 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.

The Tories are now matching the spending levels promised in Labour's 2017 manifesto, one they condemned as irresponsible at the time. If we leave the EU on a no-deal then those spending levels will increase significantly, but will do so to stand still, not to improve public services.
If austerity comes back it will be the usual people who will be affected ,the poor disabled,those in need.
Another target could be the triple lock on pensions which could put us back into the 60s where pensioners were equally part of the poor.
The 'swinging 60s' may have been good for some but not all. I believe that is where some people want us to go.
After britain being the poor man of the 70s under Labour are we to become the poor men of the 20s under the Tories?
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