Chancellor admits to Brexit black hole of £122 billion in Autumn Statement

Autumn Statement forces government bodies to finally reveal true cost to country of EU referendum vote

Rob Merrick
Deputy Political Editor
Wednesday 23 November 2016 13:56 GMT
UK growth is slashed in Autumn Statement

The full ‘Brexit blow’ to the economy has been laid bare as the Chancellor revealed that output will shrink – while borrowing will balloon by £122bn.

Philip Hammond told MPs that economic growth was now forecast to be 2.4 per cent lower in 2020 than predicted back in March, because of the June referendum result.

The annual budget deficit is forecast to be £30bn in 2019-20, instead of the £10bn projected in March, a staggering £40 billion swing into the red.

In Numbers: Philip Hammond's Autumn Statement

And, over the six years from last April, Britain will borrow an extra £122bn – of which almost £58.7bn is a black hole opened up directly because of the uncertainty created by EU withdrawal.

Of that £58.7bn, some £16bn would be caused by lower immigration, the OBR said, because an influx of migrants would have delivered an economic boost.

Delivering his first Autumn Statement, Mr Hammond did not hide from Brexit-backing Conservative MPs behind them that this was the price to be paid for the Leave vote.

He said the independent Office for Budget Responsibility (OBR), unsurprisingly, "cannot predict the deal the UK will strike with the EU”.

But he added: “Its current view is that the referendum decision means that potential growth over the forecast period is 2.4 percentage points lower than would otherwise have been the case.”

The OBR has downgraded its 2017-18 forecast for next year, alone, from 2.2 per cent to 1.4 per cent - partly because of higher inflation due to sterling’s plunge.

As a result, Mr Hammond confirmed he is no longer seeking a budget surplus in 2019-20, as his predecessor, George Osborne, had pledged.

Instead, the Government is now committed to returning public finances to balance "as soon as practicable" in the next Parliament - which could mean as late as 2025.

Shadow chancellor John McDonnell said the Autumn Statement placed on record the "abject failure of the last six years".

The June 23 vote “makes more urgent than ever the need to tackle our economy's long-term weaknesses", including the “shocking” productivity gap, Mr Hammond said.

However, the Chancellor insisted the economy had so far “confounded commentators” with its “strength and resilience” since the Brexit vote.

He said, of the 2017-18 growth forecast: “That's slower, of course, than we would wish, but still equivalent to the IMF's forecast for Germany, and higher than the forecast for growth in many of our European neighbours, including France and Italy.”

Mr Hammond also announced he is abolishing the Autumn Statement – insisting no other major economy makes hundreds of tax-and-spend changes every year.

After next year, the Budget will be staged in the autumn, with a downscaled spring statement, responding to the forecasts from the OBR -, but with no major announcements.

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