Philip Hammond warned of £84bn shortfall following Brexit vote
The Government faces borrowing £84bn more than forecast over the next five years, according to a think tank.
The Resolution Foundation said lower tax receipts and higher spending after the vote to leave the European Union would leave the Treasury with a shortfall every year, culminating in a deficit of £23bn by the end of the Parliament.
The Government’s official forecaster, the Office for Budget Responsibility, was predicting in the spring Budget that the UK’s public finances would return to surplus by 2020/21 – a pledge ditched by Philip Hammond when he became Chancellor.
Mr Hammond, who will deliver his first Autumn Statement next month, said that while the “task of fiscal consolidation must continue... when times change, we must change with them”, to account for the post-Brexit fiscal uncertainty.
Matt Whittaker, the Resolution Foundation’s chief economist, said it was vital the Chancellor “set a new economic course for the remainder of the parliament” on 23 November.
The Foundation suggested that the “new reality” of higher government debt should not prevent Mr Hammond from boosting public investment spending and increasing support for “just-managing families”, whom Theresa May has identified as her Government’s priority.
Mr Whittaker added that Mr Hammond could spend £17bn in 2019-20 if he relaxed the current financial targets and “even after accounting for the £23bn deterioration in the outlook, he would still be on course to deliver a current budget surplus in 2019-20”.
He said: “But the trade-off for this approach is significantly higher borrowing in the coming years. The Chancellor will need to decide if that is a price he is prepared to pay for adjusting to new economic times and setting out a direction for the new government.”