weaker pound , but overall the negative effects from higher inflation on consumer spending are likely to outweigh these positive effects .
There is an unprecedented degree of uncertainty over longer term economic prospects . This is driven in particular by uncertainty over how Brexit negotiations will play out – what sort of trade agreement , if any , we reach with the EU ; what sort of transitional agreement we come to - but also how the Government will use its newly repatriated powers .
On the assumption that there will be a threeyear transitional arrangement similar to the status quo , followed by a free-trade agreement , and that the Government will take a ‘ populist ’ approach in areas such as immigration policy Oxford Economics estimates that the UK economy could end up around 3 % smaller in 2030 than it would have been if we had voted to remain in the EU . Fiscal deficits over the next five years are expected to be £ 293 billion less than over the last five years yet ICAEW show how the government will need to raise £ 646 billion from external investors , £ 11 billion more than it raised over the last five years . This reflects the need to refinance debt as it matures , the financing of more student loans and the expected lack of additional quantitative easing going forwards . Thankfully , the Debt Management Office has successfully managed to issue debt that , on average , is more longterm than its counterparts in other advanced economies .
Paul Johnson , Director of the Institute for Fiscal Studies and an editor of the Green Budget , said :
“ For all the focus on Brexit the public finances in the next few years look set to be defined by the spending cuts announced by George Osborne . Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise . Even so the new chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament . Even on central forecasts that is going to require extending austerity towards the mid-2020s . If the economy does less well than hoped then we may see yet another set of fiscal rules consigned to the dustbin .”
Andrew Goodwin , Lead UK Economist at Oxford Economics and co-author of a chapter in the Green Budget , said :
“ Though the UK economy has continued to achieve solid growth , it has been almost entirely reliant on the consumer . With spending power set to come under significant pressure from higher inflation and the welfare squeeze , the consumer will not be able to keep contributing more than its fair share . Exports should be a bright spot , but overall a slowdown in GDP growth appears likely .”
If the Government is able to agree a transitional arrangement with the EU and make progress on a free-trade agreement then the impact of Brexit is likely to be fairly modest within our forecast horizon of 2021 . However , the negative effects of leaving the single market and the customs union are likely to become clearer over time and we estimate that the new trading arrangements could reduce UK GDP by around 3 % by 2030 , compared with remaining in the EU . Should we fail to secure a free-trade agreement then the outcome is likely to be worse still .”
Ross Campbell , ICAEW Director of Public Sector and co-author of two chapters in the Green Budget , said :
“ The total liabilities of £ 3.6 trillion reported at 31 March 2015 have now reached 191 % of GDP and are almost two and half times the narrower measure of public sector net debt reported in the National Accounts of £ 1.5 trillion . Put into perspective , WGA debt is now equivalent to £ 130,000 per household - as opposed to £ 70,000 using statistical accounting . In order to restore trust in Government , and to give taxpayers a clear picture of how much liability the Government has assumed on their behalf , it ’ s important that more emphasis be placed on the WGA .”
Three chapters of the Green Budget were pre-
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