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Why a no-deal Brexit would require an emergency Budget

29 October 2018

1:46 PM

29 October 2018

1:46 PM

Brexit overshadows this Budget. The story this morning has all been about Number 10 saying that the Budget won’t change in the event of no deal, in apparent contradiction of what Philip Hammond said yesterday. In truth, no deal would—obviously—have consequences for the public finances but the government’s initial reaction would be to try and stimulate the economy. Whatever anyone says now, no government would respond to no deal by taking demand out of the economy. So, yes there would be an emergency Budget. But it would be expansionary, not contractionary.

It is not just Brexit though that has left Hammond with limited room for manoeuvre. Theresa May’s pledge of £20 billion a year extra for the NHS by 2023 and her declaration that austerity is over has tied the Chancellor’s hands. But the Office for Budget Responsibility’s forecasts, which will be revised up in this Budget, mean that the squeeze on Hammond will be less acute than it otherwise would have been. He, or more accurately the Tories, will be able to put off the really difficult decisions until later in this parliament. Indeed, Hammond has enough room to find some extra money for social care and defence in this Budget.


The big political battles on departmental spending will come next year, though, with the spending review. The decisions made then will reveal a lot about how the Tories intend to fight the next election. But with the spending review not needing to happen until next autumn, it is more than possible that a different Prime Minister and Chancellor will be presiding over that.


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