November 9th, 2016
Former chancellor George Osborne set himself the objective of reaching a surplus by 2019/20. However, soon after the 23 June Brexit vote Osborne abandoned that goal. He said in a speech that the government needed to be ‘realistic’ in the climate of uncertainty and volatility that voting to leave the EU had created.
According to analysis by think-tank Resolution Foundation ‘a significant expected deterioration’ in the forecast for public finances, which is ‘partly but not wholly related’ to the Brexit vote will leave the Treasury with an £84 billion black hole.
This would include:
- £23 billion additional borrowing in 2019/20, wiping out the £10 billion annual surplus anticipated by the OBR at the March Budget and meaning the mandate’s requirement for a surplus in that year would be breached by £13 billion; and
- Rising debt as a proportion of GDP in 2017/18, breaking the secondary rule by around £10 billion in that year.
Matthew Whittaker, author of the Resolution report said the new chancellor, Philip Hammond, had already indicated the need for a fiscal ‘reset’.
He said: ‘While this has been over-interpreted as a hint of a radical shift in macro-economic policy, it simply represents recognition of the need to drop his predecessor’s fiscal pledges if he is to avoid making significant additional tax rises or spending cuts at a time when the economy will already face increased headwinds.’