UK debt could soar to a 50-year high if Britain crashes out of the EU without a withdrawal agreement, the Institute for Fiscal Studies (IFS) has warned.
The think tank said the government’s response to the economic consequences of even a “relatively benign” no-deal Brexit would push borrowing above £100bn, the BBC reports. And the total national debt is expected to rise to 90% of GDP.
“The Government is now adrift without any effective fiscal anchor,” said IFS director Paul Johnson, who claims the predicted debt crisis could result in further cuts to public spending.
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“You could well be on an upward spiral of debt and deficit, and in a world in which we have to go through another period of austerity to undo it,” he added.
The budget deficit previously peaked at almost £160bn in 2009-10, in the wake of the global financial crisis, before David Cameron and George Osborne’s spending cuts gradually brought it down.
But some economists fear those years of austerity could have all been for nothing, as no-deal Brexit threatens to plunge the UK back deep into the red.
Responding to the findings of the IFS analysis, the Treasury said all decisions would be made “with a view to the long-term sustainability of the public finances”.
“The chancellor has already said that we will be reviewing the fiscal framework as we turn the page on austerity,” a spokeperson added.
But the IFS says that even if the Bank of England tries to counter the downturn by slashing interest rates, and the Government offers emergency tax cuts and higher spending, no-deal Brexit would still cause an economic flatlining in 2020-21.
So how much has Britain’s planned exit from the EU already hit the national coffers - and what is the long-term outlook?–––––––––––––––––––––––––––––––For more political analysis - and a concise, refreshing and balanced take on the week’s news agenda - try The Week magazine. Get your first six issues free–––––––––––––––––––––––––––––––
How much has the Government spent on Brexit?
The cost of staging the EU referendum and the 2017 general election - which “can also be attributed to Brexit”, says The Daily Telegraph - comes to £269m. In addition, “MPs who were voted out of office as a result of the election claimed £4.6m in ‘winding up’ costs so they could move out of their offices and give staff redundancy pay”, the newspaper adds.
The Treasury allocated an additional £2.1bn of Brexit funding this August, bringing the total spending for Brexit preparations by government departments since 2016 to £6.3bn.
Of the £1.1bn available immediately, £434m was assigned to fund efforts to ensure that medicines and medical products remain available in the event of no-deal, and a futher £344m was earmarked for border and customs operations.
A total of £138m was put aside for public information campaigns, while £108m was allocated to help businesses prepare for Brexit, says Politico.
When Brexit spending officially began in autumn 2016, just £400m was earmarked for the preparations.
And the current total “is not all the money that the Government plans to spend on Brexit - as some departments’ pre-existing budgets will be used for Brexit preparation, too”, according to Full Fact.
To “add insult to injury”, even then prime minister Theresa May’ s thrice-defeated Withdrawal Agreement cost the public £45k in printing fees, according to the Telegraph.
Then there is the cost of holding the EU elections in May, which totalled around £156m, according to the Daily Mirror.
Even if a withdrawal agreement is finalised and the UK enters a transition period following Brexit, “plenty of things will need to be done to prepare the country for life outside the EU”, says the BBC’s Chris Morris.
These measures include recruiting 15,000 to 20,000 extra staff across government and the civil service to deal with the challenges of Brexit.
The biggest outlay is expected to be on securing the UK’s borders, particularly around the ports of Dover and Folkestone, with plans drawn up to deal with potential increases in customs checks.
And, of course, there is also the £39bn “divorce bill” agreed with the EU, with payments to Brussels in pensions liabilities also likely to continue for the foreseeable future.
“The cost of Brexit in the year running up to the UK’s formal exit is likely to increase significantly. HMRC, which will play a critical role in preparing the border for Brexit, expects it will need between £300m and £450m for 2018-19 alone,” says the Institute for Government.
That is on top of the £400m spent on Brexit by the end of 2017-18, and doesn’t include the costs of the period beyond the current fiscal year.
How much has Brexit cost the economy?
According to an April report by S&P Global Ratings, Brexit had cost the British economy £66bn in just under three years - equivalent to around £1,000 per person in the country.
The financial services company calculated that since the referendum, the UK had missed out on £550m of economic growth per week.
A sharp drop in the value of the pound caused much of the damage by reducing people’s purchasing power, analysts said. Weaker sterling has meant imports are more expensive, with rising prices passed on to consumers.
“Household spending would have been considerably stronger - in line with GDP - had the referendum not occurred,” said the S&P report, titled Countdown To Brexit: What Might Have Been For The UK Economy.
Meanwhile, Goldman Sachs found that Britain’s economy has lost nearly 2.5% of GDP compared to its growth path prior to the EU referendum, says EuroNews.
“The resulting uncertainty over the future political and economic relationship with the EU has had real costs for the UK economy, which have spilled over to other economies,” wrote economists from the bank in a report to clients in April.
Both sets of findings chimed with warnings from Bank of England boss Mark Carney, who told MPs last year that Brexit has already cost the UK economy £40bn and counting.
But Leave supporters point to continued foreign investment and record low unemployment as evidence that the economy is doing far better than most financial experts, including the BoE, had predicted following the referendum.
Chancellor Sajid Javid said in September that nobody “really knows” what the cost of a no-deal Brexit would be to the UK economy. “I have never pretended that if you leave without a deal that it won’t be challenging,” he added.
Labour’s shadow chancellor John McDonnell responded: “The Chancellor is refusing to say what the real costs of a no-deal Brexit are and its impact on the economy.
“He either hasn’t a clue or is being complete disingenuous. Repetition of the word surrender is no substitute for grown up, sensible planning.”
How much could Brexit cost the economy in the future?
The Government’s own analysis of the impact of Brexit found that the UK would be worse off outside the European Union under every scenario.
The report, made available to MPs last year, assessed the regional impact of staying in the single market, leaving with a free-trade deal, and a no-deal Brexit.
The worst-affected region of the UK was expected to be the Northeast, which voted heavily in favour of Brexit. A 3% fall in the area’s GDP growth was forecast if the UK stayed in the single market, with an 11% drop under the trade-deal model, and a 16% fall if there was no Brexit deal.
“The losses are predicted to come over 15 years and are relative to projected growth if the UK had remained within the EU,” Politico reports.
By contrast, London, which voted heavily for Remain, was forecast to experience far lesser reductions of 1%, 2% and 2.5% in each of the three scenarios.
A 2016 report from the National Institute for Economic and Social research suggested that no-deal would lower UK GDP by between 2.7% and 7.8% by 2030.
And Dutch banking services company Rabobank has suggested that leaving the EU on World Trade Organization (WTO) terms would reduce the UK’s economic output by 18% by that date.
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