U.K. watchdog warns no-deal Brexit could double nation’s deficit

LONDON A no-deal Brexit risks blowing a £30 billion hole in the U.K. government’s finances if a yearlong recession causes tax revenues to dry up, the spending watchdog has warned.

The surge in borrowing would more than double the budget deficit and does not account for an expected jump in government spending to battle the slump, the Office for Budget Responsibility revealed in its fiscal risks report.

Its stress test is based on recent forecasts by the International Monetary Fund that predict the U.K. would enter a yearlong recession that wipes two per cent off the nation’s GDP by the end of 2020.

Under this scenario, which is not the most severe of the potential outcomes studied by the IMF, the OBR said wage growth would slow sharply, business investment would plunge eight per cent next year and 10 per cent would be wiped off house prices in just over two years.

A slump would hit income taxes and national insurance contributions, while receipts from capital gains tax would also drop on weaker asset prices.

“This scenario is not necessarily the most likely outcome and it is relatively benign compared to some.

“But it still adds around £30 billion a year to borrowing from 2020-21 onward and around 12 per cent of GDP to net debt by 202324,” said the OBR.

While the surge in borrowing would be the biggest in a decade, the hit to public finances is a third of the £90 billion predicted by Philip Hammond, the Chancellor.

Hammond responded to the estimates by warning that the “most benign version is not the version that is being talked about by prominent Brexiteers,” predicting that the economy and the Treasury’s coffers face a “much greater” hit from a no-deal outcome.

A jump in borrowing estimated by the OBR would further trash hopes of balancing the books by the mid-2020s, with the deficit surging to £40 billion in 2023-24.

The fiscal watchdog also warned that pledges promised by both Tory leadership hopefuls will ramp up borrowing by tens of billions of pounds.

The Daily Telegraph

PASCAL ROSSIGNOL/REUTERS Chancellor of the Exchequer Philip Hammond, now in France for G7 meetings, says a crash-out from the EU could knock a £90 billion hole in the budget of the United Kingdom.