Brexit: Darling-style stimulus package could boost growth, says IFS

Osborne's £25 billion black hole should not be filled, says think tank


A spending package comparable to Labour’s after the financial crash would boost slowing growth post-Brexit, says the Institute for Fiscal Studies (IFS).

The independent think tank said a quick injection of public sector investment spending, temporary cuts to VAT and stamp duty, and limited tax breaks for busineses could jump-start the economy.

The suggestion came as the IFS warned of a £25 billion black hole in UK finances should the government stick to former chancellor George Osborne’s March Budget, due to low growth forecasts. Its briefing note today said:

“were the [Office for Budget Responsibility] to downgrade its forecasts for the economy in line with that done by the Bank of England and independent forecasters then we could expect the deficit to be around 1.2 per cent of national income, or £25 billion, higher in 2019–20 than forecast at the time of the March 2016 Budget.

So there would be a forecast headline deficit of £14.9 billion (0.7 per cent of national income) instead of a headline surplus of £10.4 billion (0.5 per cent of national income).”

It adds: ‘This means that to restore the public finances to the path intended by Mr Osborne would require an additional fiscal tightening of £25 billion. This is unlikely to happen and there are good reasons why it should not.’

A targeted stimulus, which the IFS likened to Labour chancellor Alistair Darling’s in 2008, could boost demand, tax receipts and growth, and would be better than short-term austerity.

However, the cautious IFS said this should only be temporary, adding:

“If long run potential output is reduced by the UK leaving the EU then in the end public spending will have to be lower, or taxes higher, than would otherwise have been the case.”

Adam Barnett is staff writer for Left Foot Forward. Follow him on Twitter @AdamBarnett13 

See: Fish fingers get more expensive and wages tumble after Brexit

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