-Can Chancellor Hammond pull a rabbit from the hat?
U.K. Chancellor Philip Hammond is set to announce the Autumn Statement this week on Wednesday while markets will look at the implications of the Brexit on budget arrangements. Speaking to the BBC on Sunday, Hammond said
The budget plan will not include a big new spending push because of "eye-wateringly" high public debt levels, but will offer help for the economy and struggling families.
"Over the next couple of years we are going to face some uncertainty over the economy,” he said.
Hammond’s task will not be easy. Despite the positive economic outlook on demand, unemployment and inflation despite the sharp decline of sterling and rising costs on import products, Hammond’s real challenge will be financing the deficit in the country. According to Financial Times, Hammond will admit to the largest deterioration in British public finances since 2011 in next week’s Autumn Statement when the official forecast will show the U.K. faces a £100 billion bill for the Brexit over the next five years.
In a conversatıon with former Minister of Treasury Jim O’Neill with Anadolu Agency in March, O’Neill hailed former Chancellor Osborne’s plans to reach a budget surplus by 2019-20 as realistic. However, June’s EU referendum changed all that and now estimates show that the U.K. will have a widening deficit due to a slower growth path and lower-than-expected investment in the medium and long term due to the Brexit decision.
According to London-based Institute for Fiscal Studies, estimates show that a weaker economic outlook would lead to roughly £30 billion in additional borrowing by 2019-20 before any gains from lower contributions to the EU budget are taken into account. The Treasury also predicted that before the referendum, nearly £36 billion in annual costs would be needed from the government’s purse for nearly five years. As a result of all these projections, the public debt is very likely to jump by £100 billion this year, raising it from 83 percent of national income to almost 90 percent.
Will Hammond be able to pull a rabbit from the hat on Wednesday? The markets will be eyeing the implementation of fiscal discipline amid the rising uncertainty in the economic outlook. It is still uncertain when and how article 50 will be triggered. Oliver Letwin, the former head of the government’s Brexit preparations, called on the prime minister to abandon its Supreme Court appeal over the decision on article 50 -- the mechanism that triggers exit negotiations. The former Attorney General Dominic Grieve and former Solicitor-General Sir Edward Garnier also said the prime minister should avoid taking the case to the U.K.’s highest court. Moreover, lawyers for the Scottish and Welsh governments have been allowed to take part in the Supreme Court case over Theresa May’s decision to bar MPs from voting on Brexit.
As a result of all the political cacophony over the Brexit decision, Hammond’s task to balance the budget and keep the deficit at sustainable levels seems rather difficult.