Britain’s public purse will be £25 billion worse off by 2020 because weak growth will drive down tax receipts, according to an influential economic think-tank.
The Institute for Fiscal Studies said a forecasted £10.4 billion budget surplus in 2019-2020 will be wiped out, forcing the government to borrow an extra £14.9 billion.
The IFS said any savings from leaving the European Union’s single market will be more than outweighed by lower growth.
The shortfall “is mostly down to lower economic growth, which more than outweighs the cut to spending from no longer having to make a net contribution to the EU budget and lower debt interest spending arising from lower borrowing costs,” the IFS said in its report.
Here’s the chart:
And here’s how borrowing forecasts are set to diverge from March estimates made by the Office for Budgt Responsibility:
The study comes a few weeks before Chancellor Phillip Hammond is due to give his Autumn Statement on November 23.
The Statement is like an interim Budget and marks the first major event of Hammond’s stint as chancellor since he was appointed to the post by Prime Minister Theresa May after the June Brexit vote.
The IFS said the forecasts were uncertain and there was a good chance the UK’s economic position could be a lot better or a lot worse than thought.
“Past public finance forecast errors imply the chancellor still has a 40% chance of a surplus in 2019 — 20,” the IFS said. “But, on the flipside, there is also a 40% chance that the surplus in 2019 — 20 turns out to be more than £30 billion.”
Earlier this year the IFS said the fallout from a so-called hard Brexit would weaken the government’s finances by as much as £39 billion by 2020 in a worst-case scenario, adding two years onto policies of austerity.
“Unfortunately if anything the £25 billion estimated deterioration in the public finances in 2019 — 20 is likely to understate the increase in the longer-term challenge that has occurred since the March Budget,” the report added.