UK Budget After Brexit
Chancellor of the Exchequer Philip Hammond said in his March 8, 2017 budget speech to the House of Commons “As we start our negotiations to exit the European Union, this budget takes forward our plan to prepare Britain for a brighter future.”
Hammond stated the UK’s annual gross domestic product (GDP) growth would come in at 2 percent this year, considerably higher than the government’s previous 1.4 percent forecast in the autumn, implying that the UK economy had performed better than predicted after the June 2016 referendum in favour of leaving the EU. It is worth nothing that in order to factor in the remaining uncertainty of the impending launch of Brexit, a prior first estimate of 2.2 percent had been downgraded, as agreed with the Office for Budget Responsibility (OBR).
Hammond also downgraded GDP forecasts to show a slowing down to 1.6 per cent in 2018, then 1.7 per cent and 1.9 per cent before crawling back to two per cent in 2021, according to Office for Budget Responsibility.
The Exchequer is expected to borrow less than expected, giving a figure £23.7 billion less over five years. Hammond stated that public borrowing will decrease significantly in 2017 to 51.7 billion pounds from the 68 billion seen previously. Hammond also hopes to build up a reserve fund in case he needs to help Britain’s economy through a Brexit slowdown ahead.
Hammond was meanwhile criticized for raising National Insurance bills for the self-employed by 1 percent to a total of 10 percent starting in April 2018, and by another percent in April 2019. Many accused him of breaking a Conservative manifesto pledge not to increase VAT, National Insurance contributions or income tax. The Government did a U-turn a week later. It is unclear how he will fill the £2 billion hole in the finances by pulling out of this plan.
Pay-as-you-earn income tax is the government’s single most important source of revenue. The OBR has predicted this tax could be affected by leaving the EU, because there may be less high earners in sectors such as the financial services, that are deeply connected to the single market.
“Today, we reaffirm our commitment to invest in Britain’s future,” Hammond declared. “We embark on this next chapter of our history, confident in our strengths and clear in our determination to build a stronger, fairer, better Britain,” he told MPs. There will be extra investments in education, social care, transport and small businesses.
EU Budget payments
A House of Lords analysis states that Britain will not be legally obliged to contribute towards the European Union’s budget if no exit deal is reached. The report also claims that calculations of the UK’s ‘divorce bill’ from the EU are speculative and almost every element is subject to interpretation. Michel Barnier, the European Commission’s chief Brexit negotiator, has reportedly placed such a bill close to €60bn (£52bn).
Earlier in 2017, David Davis, the Brexit Secretary, had stated that the Government would not rule out making future payments to the EU’s budget in order to secure favourable access to Europe’s markets. Chancellor Philip Hammond had agreed with this statement, but Theresa May warned her European allies that the UK is prepared to crash out of the EU if no reasonable Brexit deal is agreed, adding “And while I am confident that this scenario need never arise – while I am sure a positive agreement can be reached – I am equally clear that no deal for Britain is better than a bad deal for Britain.”
Commenting on the report, the chair of the Lords committee Baroness Falkner of Margravine said: “The UK appears to have a strong legal position in respect of the EU budget post-Brexit and this provides important context to the Article 50 negotiations….Even though we consider that the UK will not be legally obliged to pay in to the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations.
The forthcoming Brexit negotiations are more than a trial of strength. The UK and EU will want to establish a stable, cooperative and amicable relationship. This requires good will on both sides.