What does the Brexit vote mean for the public finances?
Economists have warned the government's debt pile is set to jump following the UK's decision to leave the European Union.
With growth forecasts being slashed and many fearing the UK is on the brink of a recession, the chances of the UK eradicating its budget deficit by the end of the decade are look slimmer.
Before the UK voted to leave the EU, the Office for Budget Responsibility (OBR) was giving George Osborne only slightly better than a 50-50 chance of meeting his target of a surplus. Controversially, the chancellor said he would have to raise taxes or cut spending in an emergency post-referendum budget to get the books to balance.
Those plans were quickly dropped following the result of the referendum.
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All of which has left analysts crunching the numbers. If the government isn't going to cut spending or raise taxes, then what shape will the public finances be in if the economy stumbles?
In the last financial year, the government borrowed £75bn – a budget deficit of around 3.8 percent. On the government's calculations, its net debt-to-GDP ratio is around 83.7 per cent. On EU calculations it is closer to 90 per cent. The aim is to run a budget surplus by 2019/20.
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However, before the vote the Institute for Fiscal Studies (IFS) – revered analysts of the government's balance sheet – said a vote to leave could put a £20bn to £40bn black hole in the government's plans. That would see the deficit rise sharply, and debt continue to grow both in absolute terms and as a percentage of GDP.
The Centre for Economics and Business Research (CEBR) agreed. After the UK voted to leave, Douglas McWilliams, its president said an initial calculation showed the government's annual borrowing requirement would leap to £100bn.
Scott Corfe, an economist for the CEBR, added post-Brexit uncertainly "will significantly constrain the ability for tax receipts to rise", while a potential recession would put pressure on the government to loosen the purse strings and "leave the public finances in a worse position".
Yesterday, the Economist Intelligence Unit also issued a rather gloomy outlook for the government's coffers. It claims the government's annual shortfall will be higher in 2017 and 2018 than it was last year, adding considerably to the UK's debt pile. On the EU measure, it believes debt will jump from 90 to 100 per cent of GDP.
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Howard Archer at IHS Global said the landmark 100 per cent debt-to-GDP ratio "certainly cannot be ruled out given the markedly weakened growth outlook and the appreciable black hold that will cause in the public finances.
"Unless UK growth proves remarkably resilient after the Brexit vote, which we doubt … the public finances are clearly going to [take] a serious hit," he added.
However, most suggested it was still too early to tell precisely what would happen to government spending, since it relies on the complex relationship between growth, tax revenues and policy.
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"Another thing to keep in mind," said Scott Bowman of Capital Economics, "is it's not just the hit to growth that matters for the public finances but the composition of it. If much of the hit comes through business investment – as we think it probably will – this won't have as much of an impact on receipts than if it was through consumer spending."
Theresa May, the frontrunner to succeed David Cameron, has already said she will ease the government's tight fiscal stance following the vote to leave the EU, implying the UK could still be running a budget deficit into the next decade.
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However, higher government borrowing might not place too much of an additional strain on the UK economy, due to record low interest rates, Bowman added.
"There should be a partial offset, as debt interest costs should be lower over the forecast period due to the fall in gilt yields we have seen recently.
"For these reasons we don't think it is likely that debt will pass 100 per cent of GDP, although it is a possibility if the economy worsens."