Chancellor told he faces £84bn black hole in statement plan
Think tank warns of sharp deterioration in finances
CHANCELLOR Philip Hammond faces an £84 billion “black hole” in next month’s Autumn Statement in the wake of the shock Brexit vote, according to a leading think tank.
The Resolution Foundation today warns of what it calls a “sharp deterioration” in the public finances.
In response the Chancellor could raise taxes, cut spending or sign up to “significantly” increased borrowing over the next five years, it warns in a new report.
The value of the pound plunged in the wake of the Brexit vote.
Economists have also warned that the UK could be headed for a combination of rising inflation and an economic slowdown.
Yesterday the chairman of Tesco warned that food prices were “very likely” to rise as a result of Brexit.
John Allan said the fall in the value of sterling would have a knock-on impact on customers.
The governor of the Bank of England Mark Carney also admitted that banks could “adjust some activity” just days after warnings that bosses had their hands “poised quivering over the relocate button” because of Brexit fears.
Matt Whittaker, the chief economist at the Resolution Foundation, said: “Despite the long-term impact of Brexit remaining very uncertain at this stage, there is a strong consensus among economists that post-referendum uncertainty will lead to deterioration in the public finances, which were coming in below expectation even before the referendum.
“We won’t know the OBR’s verdict until November 23 but our analysis shows that the Chancellor may face a new £84bn borrowing black hole and the prospect of breaking the fiscal rules inherited from his predecessor.
“Rather than announcing very significant further tax rises or spending cuts in the face of renewed economic headwinds, the Chancellor is right therefore to press the fiscal reset button and set a new economic course for the remainder of the parliament.”
New rules could help investment and the so-called “struggling classes” he said, but would need “significantly higher borrowing”.
Meanwhile, Labour called on ministers to “come clean” on the state of the public finances after a leaked Treasury document admitted it was “unlikely” to meet its deficit reduction target.
The briefing paper said that the figures continued to show a “run of disappointing data” on the economy, which it blamed on lower than expected tax returns.
It added that ministers were on course to overshoot the public sector net borrowing target by almost £16bn next year.
Shadow chancellor John McDonnell said the briefing note confirmed the “Tory failure on the economy”.
He said: “Now we’ve had it from the official civil servants it’s time the Tories came clean. They should drop the spin and admit the truth: they are failing on the public finances and working people are paying the price.”
A Treasury spokesman said: “The Chancellor has been clear that while the deficit has been cut, it is still too high. The Government is committed to balancing the books over a sensible period of time, in a way that allows space to support the economy.”
Meanwhile, Mr Hammond warned MPs that the EU could be politically motivated to give the UK a worse than expected Brexit deal.
Advocates of leaving the European Union argue that an agreement that is acceptable to both sides is in the EU’s interests, because of the large amount of trade it does with the UK.
But Mr Hammond said EU leaders could be motivated by other factors, to the UK’s detriment.
‘‘ It’s time Tories came clean. They should drop the spin and admit the truth: they are failing on the public finances