Britain's debt burden would jump to its highest level in 50 years if it leaves the EU without a deal, a leading think-tank warned Tuesday.
The Institute for Fiscal Studies (IFS) said that due to Prime Minister Boris Johnson’s public spending plans, government borrowing was set to top 50 billion ($61 billion, 56 billion euros), equal to 2.3 percent of GDP, or total national economic output.
The figure is double what the Office for Budget Responsibility public body was forecasting in March, four months before Johnson took office pledging a public services spending boost.
It also breaks the government’s self-imposed fiscal rule of keeping borrowing to below two percent of GDP in order to balance the books by the mid-2020s.
The IFS economic research institute said that even a relatively benign no-deal Brexit would likely lead to borrowing approaching 100 billion or four percent of GDP.
As a result, accumulated national debt would climb to almost 90 percent of GDP (Gross Domestic Product) for the first time since the mid-1960s, the IFS said.
Britain is due to leave the European Union on October 31, with or without a Brexit deal, according to Johnson.
Without a deal, Johnson’s planned mini-boom in public spending would likely be followed by another bust as the government struggled to deal with the consequences of a smaller economy and higher debt for funding public services, the IFS said.
“The government is now adrift without any effective fiscal anchor,” said IFS director Paul Johnson.
In the case of a no-deal Brexit, it should implement “carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy”, he said.
“It will be crucial that these programmes are temporary: an economy that turns out smaller than expected can, in the long run, support less public spending than expected, not more.” Analysis for the IFS done by Citi bank suggested that growth in Britain has been weaker than in other Group of Seven economies since 2016.
Total economic output is between 2.5 percent and 3.0 percent (55-66 billion) lower than it would have been had Britain voted to stay in the EU in the 2016 referendum.
It said Britain had also seen the most sustained fall in business investment outside of a recession.
A continued delay to Brexit would mean continued uncertainty and very poor growth of only around one percent a year.
Meanwhile Britain’s tax authority said that in the event of a no-deal Brexit, the annual cost to businesses for filling in additional customs forms work would be an estimated 15 billion.
Companies would face “significant ongoing administrative burdens”, Her Majesty’s Revenue and Customs said Monday in an impact assessment paper.
“HMRC therefore estimates that the static total ongoing administrative burden on UK-EU trade is 15 billion,” the paper said.