Brexit: Boris Johnson urged to spend £60bn to limit impact of no deal

‘While there would be much discussion of the exact quantum of these interventions, the central issue is that they will need to be much more significant than many assume or than we used to,’ think tank says

Tailbacks at borders are one of the predicted consequences of an abrupt exit from the EU (AFP/Getty)

The government will need to spend much more than previously estimated to limit the short-term damage to families and firms from a no-deal Brexit, adding £60bn to its borrowing in the first year alone, according to a report.

The document by the Resolution Foundation argues for a massive package of measures, including temporary tax cuts and emergency loans, to soften the impact. Even so, the think tank warns the measures will inevitably fall far short of eliminating the economic damage of an abrupt exit.

The scale of recommended spending is much larger than the amount the already-indebted government can borrow in the 2020-21 fiscal year without breaking its self-imposed borrowing limit.

“While there would be much discussion of the exact quantum of these interventions, the central issue is that they will need to be much more significant than many assume or than we used to,” the report says.

“Crucially, the background to that package would be significant deterioration in the public finances.”

In July, then-chancellor Philip Hammond said the government will need to borrow more than £27bn to respond to the immediate disruption of a no-deal Brexit.

The amount pales in comparison with the numbers set out in the latest Resolution Foundation report.

It calls for a £40bn spending spree in 2020-21 to increase demand in the economy, through steps such as a temporary VAT cut, an increase in benefits and new investment. The government should pour another £20bn into support for companies, such as one-year government-guaranteed emergency loans and a grace period on some business taxes.

According to the report, the extra spending will have the biggest impact on public borrowing in the first year and will then increase it by a smaller £40bn in 2021-22 and by £15bn in 2022-23.

The Resolution Foundation says these measures will be required in a no-deal scenario because households and firms are likely to cut back on spending “in the face of significant uncertainty in the near term and a reduction in earnings in the long term”.

Another shock will come from the sudden increase in barriers to trade with Britain’s biggest trading partner, the EU.

The economy will have more adjusting to do once the UK and the EU agree on their new permanent relationship – “one much less open than the status quo today but more open that seen in the immediate aftermath of a no-deal exit”, the think tank notes.

“In the longer term, a less open, less productive economy will be one in which incomes, asset values, and living standards will grow more slowly.”