A no-deal Brexit reportedly could see the government borrowing rise to approximately £100 billion a year. The Institute for Fiscal Studies (IFS) claimed that the last month's spending review shows that government borrowing was apparently on course to top £50 billion next year which is more than double what the office for Budget Responsibility was forecasting as recently as March. IFS further claimed that a mini-boom in public spending is predicted which is likely to be followed by bust as the government struggles to cope with the consequences of a smaller economy and higher debt on its funding of public services.
The IFS 'green budget' published in association with the Citi and Nuffield Foundation, looks at the challenges and the issues faced by the Chancellor Sajid Javid as he prepares for his first budget. The analysis from the economists at the global investment bank reportedly shows the UK economy was already as much as £66 billion smaller, as a result, the leave vote and predicting two years of zero growth in the event of no-deal. The IFS also claims that the plans for a 4.4% rise in day-to-day spending next year - together with a weakening economy - would help push borrowing above £50bn, or more than 2%, of national income.
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The IFS analysis concluded that the government was now operating with no effective fiscal rules. It further has abandoned a manifesto commitment to balance the books by the mid-2020s. The IFS judged that the chancellor needed the flexibility to loosen the purse strings if necessary to respond to economic hard times but cautioned Javid against implementing any substantial and permanent tax cuts. UK PM Johnson reportedly said that the government is now adrift without any effective fiscal anchor. In the case of a no-deal Brexit, it should be implemented carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy. He further added that it will be crucial that these programs are temporary: an economy that turns out smaller than expected can, in the long run, support less public spending than expected, not more.
(With inputs from agencies)