George Osborne is drawing up an emergency budget to plug a £30 billion ($43 billion) budget “blackhole” in case Britain votes to leave the European Union next week, according to reports.
Osborne has co-authored an op-ed in Wednesday’s Times with former Labour Chancellor Alistair Darling setting out what both claims are the economic effects of a Brexit.
The pair say that a vote to leave Europe “would lead to a profound economic shock that would hit the economy and could tip Britain back into recession.” As a result, Osborne sets out what he sees as likely emergency budget measures.
- 2p rise in the rate of basic income tax to 22%;
- 3p rise in the higher rate of income tax to 43%;
- 5p rise in inheritance tax to 43%;
- Alcohol and fuel duties hiked by 5%;
- £2.5 billion a year cut from NHS budget;
- £1.2 billion a year cut from defence budget;
- £1.15 billion a year cut from education budget;
- Pension spending cut by £2 billion;
- £5.8 billion of cuts to Home Office, policing, transport, and local government;
Osborne and Darling forecasts a £30 billion budget “blackhole”, based on the mid-range of models by the Institute for Fiscal Studies (IFS). £15 billion would be plugged by spending cuts while £15 billion would be met by tax rises.
The IFS has warned that a vote to leave Europe would likely extend austerity measures by at least another two years. Darling and Osborne call a vote to leave the European Union “the most extraordinary self-inflicted wound” that “would hit trade and investment, and bring many years of uncertainty as we sought to negotiate new trade arrangements.”
The Leave campaign is arguing that the government would have billions more to spend on the NHS if Britain quits Europe but Osborne and Darling write that it “would mean fewer jobs, lower wages and less tax for the exchequer.” The IFS has already attacked the Leave campaigns numbers around this point, calling them “clearly inappropriate” and “clearly absurd.”
The International Monetary Fund (IMF) and the Bank of England have both also warned about the economic impact of a potential Brexit. Bank of England governor Mark Carney warned a Brexit could tip the UK back into a recession.
Despite the dire economic warnings, it looks like Britain is heading for an Out vote. The latest polls shows the Leave campaign with a huge 7 point lead over the Remain vote.
George Osborne and Alistair Darling, who was Chancellor under Gordon Brown from 2007 to 2010, will share a stage today to give a speech about the planned emergency budget, which the pair say would be necessary under any government.