Both the British Government and the European Union insist that they do not want a “no-deal” Brexit. Yet it remains a possibility – and one which must be prepared for.
Today, the Centre for Policy Studies (CPS) publishes a major paper setting out the measures the Chancellor should consider in a no-deal scenario, designed to complement the Treasury’s own contingency planning.
‘A Budget for No Deal’ argues that the Government’s main priority, if a deal cannot be reached, should be to avoid the shock and disruption of no deal translating into a general crisis of confidence.
While the Bank of England will doubtless have a role to play via monetary policy, the report suggests there would also be scope for a limited fiscal stimulus – worth up to £44 billion, or approximately 2% of GDP – to incentivise business investment and put more money in consumers’ pockets as a cushion against rising prices.
It also argues that the Government must act to keep the economy open to the world, citing polling which shows that the public overwhelmingly want Britain post-Brexit to be the most business-friendly and lowest-tax country in Europe.
The headline policies from the report are:
- Immediately introduce the cut in corporation tax (to 17%) scheduled for 2020
- Focus support on small and family firms by temporarily cutting their business rates and employers’ National Insurance Contributions
- Allow companies to write off additional capital expenditures against corporation tax in order to promote investment
- Fast-track infrastructure projects and support house building via a package of measures, including promoting new-build purchases
- Impose an immediate 18-month moratorium on new regulation, and urgently review existing burdens on business
- Put more money in consumers’ pockets by raising the National Insurance threshold to match the £12,500 income tax allowance – cheaper than a VAT cut and far more effective
- Freeze council tax, with councils being compensated for the loss of income
- Support those not in work or on low incomes by ending the working-age benefits freeze (which includes tax credits), and topping up the state pension
Keeping Britain open
- Unilaterally reduce tariffs to zero wherever possible, while supporting the most vulnerable sectors and regions
- Impose no additional burdens on goods arriving from the EU
- Support exporters, particularly small and family firms, in dealing with the challenges of no deal
- Push forward with “free ports” around Britain
- Reform the visa system for investors, entrepreneurs and highest-skilled workers
- Offer time-limited tax incentives to encourage highly-paid workers and dynamic businesses to relocate to Britain from overseas
Robert Colvile, Director of the Centre for Policy Studies, said: “The Government is currently negotiating with the EU, and I certainly hope those negotiations succeed. But even if MPs vote to delay Brexit next week, no deal will remain a possibility. Under those circumstances, it would be negligent not to consider the potential consequences of no deal, and to try to prepare for them.
“It is impossible to predict the exact impacts. But it is clear that reassuring consumers and businesses will be vital – as will ensuring that Britain remains open to the world. In particular, we believe that there is scope, given the stronger position of the public finances, for a limited fiscal stimulus alongside whatever monetary steps the Bank of England may take.
“It is crucial that whatever measures we take promote enterprise in the long term, without distorting the economy. Polls show that the public want post-Brexit Britain to be the most business-friendly and low-tax country it can. That is also the path to maximise growth, whatever the manner of our departure from the EU.”