IFS: October emergency budget extraordinarily bad idea

31 Jul 19

An October emergency budget would be an “extraordinarily bad idea”, director of the Institute for Fiscal Studies Paul Johnson has told PF.

The top economist explained to PF he could not see the benefit of making tax and spending decisions “when you’ve got very little idea what’s going to be happening with the economy over the next year”.

The think-tank director’s warning comes after Kit Malthouse, a junior minister in Boris Johnson’s government, suggested on national television there would be an emergency budget in the autumn.

Policing minister Malthouse told Sky News the prime minister “announced there’s going to be an emergency Budget in the autumn, which will be designed to stimulate the economy”.

Economist Johnson told PF: “My view is that having an early Budget in anticipation of a no deal Brexit is an extraordinarily bad idea,” and claimed, “it’s hard to come up with a very good reason for doing it”.

He said: “Having a budget which presumes the outcome [of Brexit] would seem a little odd frankly – why go out of the gate before you know where you are headed?”

By holding a Budget in the first week of October “you can’t do anything very much that’s going to make any difference by the first week of November,” Johnson said.

The economist added: “I am sure that Treasury officials will be advising against it, but I have no sense as to how big the political impetus behind planning for it is.”

The Treasury has refused to be drawn on whether an emergency Budget is planned for October, saying: “The chancellor will announce the timings of any fiscal event.”

But PF has learned from sources close to Whitehall that Cabinet Office officials have been told to prepare for an early Budget.

Reports have suggested the emergency budget would be in early October – the week after the Conservative Party conference and less than a month before the UK’s set departure date from the EU on 31 October. 

The Budget typically takes place in the year later than October, although the 2018 Budget was brought forward [to 29 October] to avoid crossover with Brexit negotiations.  

Johnson suggested to PF if the UK leaves without a deal there may be a need for a fiscal stimulus “to get things going” but warned any efforts could be undermined by supply problems created by a no deal scenario.

“A lot of the problems created by no deal will be supply-side issues – things getting stuck in ports or customs – and stoking up the economy when you have already got supply constraints is probably the last thing you want to do.”  

He suggested that in the event of no deal a “carefully calibrated” set of interventions would be needed to target the most affected areas.

During the 2016 EU referendum campaign then chancellor George Osborne warned he would have to slash public spending and increase taxes in an emergency Budget if the UK voted to leave the Union.

Although the UK voted to leave the EU, Osborne did not hold his emergency Budget, which he said was necessary to tackle a £30bn funding ‘black hole’.

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