No-Deal Brexit May Prolong U.K. Austerity, Hammond Says
(Bloomberg) -- The U.K. will need new tax and spending plans and may have to extend austerity policies if it fails to secure a deal with the European Union, Chancellor of the Exchequer Philip Hammond said.
With analysis last week showing a no-deal Brexit would drag the economy to a near-standstill next year, in that scenario “we’d need to have a new budget that set out a different strategy for the future,” Hammond said.
“We would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction that would ensure that Britain was able to succeed whatever the circumstances we found ourselves in,” he told Sky News’s “Ridge on Sunday” on the eve of his annual budget speech.
The Bank of England may also need to take action, potentially through a change in interest rates, he said.
Hammond is facing pressure to end almost a decade of spending cuts that have limited public services and spurred support for the opposition Labour Party and its socialist leader, Jeremy Corbyn. Labour, which is neck-and-neck in the polls with the Conservatives, said Britain must spend more than 100 billion pounds ($128 billion) on public services to reverse the impact of a decade of austerity.
The party’s finance spokesman, John McDonnell, said Hammond appeared to want a no-deal Brexit and accused him of “complacency” over talks with the EU.
“He’s gone back on what he said. He seems to have accepted a no deal-Brexit and he does want us to be like Singapore, a sort of tax haven which would undermine our manufacturing base,” he said on Sky after Hammond’s recorded interview was broadcast.
Prime Minister Theresa May has directed Hammond to find an extra 20 billion pounds a year for the National Health Service, and she declared an “end to austerity” in her party conference speech earlier this month.
Hammond will pledge additional money for adult social care and the armed forces, according to the Mail on Sunday. He’ll also announce at least 250 million pounds in funding to anchor and extend fiber networks from schools, libraries and other state-owned property, according to the Sunday Telegraph newspaper.
“He’s surely been given ‘mission impossible’ by the prime minister unless we get a Brexit deal that puts jobs first,” Frances O’Grady, general secretary of the Trades Union Congress, said on the Sky broadcast.
Hardline Brexiteers like Tory lawmaker Jacob Rees-Mogg called on Hammond to announce more radical measures in his budget instead of waiting for an outcome from the EU talks.
“We should be making announcements now about how we would deal with leaving on World Trade Organization arrangements,” he said. He urged the chancellor to cut customs duties on all goods produced outside the U.K. and reduce the value-added tax for goods that are currently higher because of EU rules, such as solar panels and female sanitary products.
Hammond also gave the strongest hint yet that he’ll inject more cash into a new welfare system under which many poor people have gone for weeks without correct payments.
He told the BBC there have been “teething problems” with the new Universal Credit system. “Where we see issues that need addressing, we will address them,” he said. Separately, Treasury Minister Elizabeth Truss told BBC Radio the government was “listening very carefully” to demands by dozens of Conservative lawmakers that the UC be given more money.
©2018 Bloomberg L.P.