Bad Brexit risks new round of austerity, IFS warns one day after Budget

The IFS today dashed hopes that the current period of austerity could come to a swift end
EPA

Millions of families were warned today that Britain risks being plunged into years of more austerity by a disorderly departure from the European Union.

Leading economists said there was danger of another period of economic gloom in the event of a no-deal Brexit. The Institute for Fiscal Studies issued its warning as Theresa May’s crisis-hit Government tried to get Brussels, Parliament and the Tory Party to ditch opposition to her proposed Brexit plans.

With talks deadlocked just five months before Brexit Day in March, the think tank also dashed hopes that the current period of austerity could come to a swift end — despite Philip Hammond’s upbeat Budget yesterday.

The Chancellor said that “the era of austerity” was “finally coming to an end” after the financial crash 10 years ago.

However, the IFS stressed that while additional funding of tens of billions of pounds was set to be poured into the NHS, there would be little, if any, money left to increase spending on other public services, such as schools, town halls and the police in the next few years.

IFS director Paul Johnson also emphasised that the Chancellor’s spending figures in the Budget would “go out of the window” if there is no deal as they were based on a “fairly smooth, softish kind of Brexit”.

He predicted that the Government would respond by “splashing more cash” in the short term to prop up the economy. “The Chancellor would probably try to support the economy by cutting taxes or increasing spending immediately — but would then have to claw that back through potentially another prolonged period of austerity,” he told the Evening Standard.

Philip Hammond delivers his Budget speech
PA

Asked at a press conference in Oslo, Norway, whether the Budget paved the way to an early general election, Mrs May said: “No. We are not preparing for another general election. That would not be in the national interest.”

The Prime Minister praised the Budget, saying: “Austerity coming to an end isn’t just about more money into our public services, it’s about more money in people’s pockets as well.”

Mr Hammond has earmarked £15 billion for a “Brexit buffer” to inject into the economy if needed if the UK suffers the “shock” of a no deal. He also promised that increasing personal tax allowances and extra funding for Universal Credit would still “go forward”.

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Fears of a no-deal scenario have grown in recent weeks after the failure to make a breakthrough on the Irish border row at the October EU summit. The issue remains the biggest stumbling block on agreeing the UK’s “divorce” from the European bloc.

The Cabinet is also bitterly divided over the future trade deal Britain should seek, with several ministers opposed to Mrs May’s Chequers proposals which would keep close trading ties on goods but not services. Brussels has also rejected the Chequers plan.

The IFS also concluded that the Chancellor “got lucky” with his windfall from higher tax revenues and less spending, and his decision to invest it meant that it was now “surely for the birds” that he was serious about getting a budget balance by the mid-2020s.

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