The Post Brexit Budget

This morning on the Today programme we were told about the fact that both George Osborne and Alastair Darling agree that a post Brexit budget would involve tax rises and public spending cuts. This must be right in so far as it pertains to the long-term. As most economists have pointed out, Brexit will shrink the economy in the longer term. So either public spending has to fall, or, to keep the State at the same proportion relative to the private economy, taxes have to rise.

However, in the short-term, things are much less clear. If interest rates were not constrained by their natural floor, it might be sufficient to respond to the recessionary shock that a vote to leave would impart by simply letting the automatic stabilisers and the Monetary Policy Committee do their work. However, right now, with the Bank of England unable to inject much more stimulus (it’s clear that the MPC don’t view QE as an adequate substitute for interest rates any more), the economy would be in need of a discretionary stimulus to take the place of monetary policy.

Such a stimulus would not be undertaken lightly, however, since the uncertainty hanging over the process of sorting out what Leavers want to ask for, and our negotiating partners want to give us, would rightly constrain a rational Chancellor of the Exchequer.

It is interesting to read that 57 Tory MPs have said that they would block a post Brexit budget of the kind that Osborne warned of. I wonder how many of those were calling for a discretionary loosening from 2010 onwards, at a time when Osborne was likewise refraining from a discretionary stimulus of the kind that many called for?

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One Response to The Post Brexit Budget

  1. Costas Milas says:

    Farage says to ignore this as Osborne will lose his job post-Brexit. In the meantime, Cardiff are looking for a lecturer in the economics of the EU (http://www.jobs.ac.uk/job/ANX176/lecturer-in-the-economics-of-the-european-union/). Hold on Tony: Have they got permission from Brexiters?
    Costas

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