Great Britain

Boris Johnson's Brexit policy risks no-deal crash-out next year that will trigger a recession and return to austerity, expert IFS analysis indicates

Boris Johnson’s Brexit policy risks a no-deal crash-out at the end of 2020 heralding a recession and a return to austerity, a leading economic think tank has said.

And the Institute for Fiscal Studies said it was clear that - even if no-deal is avoided - the prime minister’s withdrawal agreement will make the UK “less well off” than if it remained in the European Union.

By contrast, the IFS said it was it was “not implausible” to expect a £50 billion “Remain bonus” for the public finances through a 2 per cent increase in growth if Brexit is cancelled, as Liberal Democrats have suggested.

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Even after UK contributions to EU budgets, the economic benefit of avoiding Brexit could mean an extra £24 billion for Treasury coffers.

Mr Johnson’s manifesto commitment not to ask for an extension to EU trade talks if there is no agreement by the end of 2020 means the UK could face a sudden move onto unfavourable World Trade Organisation tariff regimes in just over a year’s time.

The IFS said this could see the UK’s deficit rise “very substantially” to around 4 per cent of GDP and national debt increase “sharply” to reach over 80 per cent, reversing the downward trend of recent years.

Director Paul Johnson told a Westminster seminar: "The risk for the Conservatives is that their 'die in a ditch' style promise to exit the Brexit transition period by the end of 2020 could mean something rather like a 'no-deal' outcome. That would harm the economy and of course increase the debt and deficit."

And he added: “It is clear that if we go into a no-deal Brexit, that creates an increased risk of a downturn.”

Deputy director Carl Emmerson said that, while the government might initially respond to a downturn by pumping money into the economy to keep it afloat, in the longer term it was likely to be faced with the choice between tax rises and spending cuts or a combination of both.

“A return to austerity is perhaps the most likely outcome, not immediately but in the medium term,” he said.

Mr Emmerson added: "Under the Conservative manifesto plans, there is clearly a risk of a no-deal Brexit happening that would be economically damaging and would harm the public finances."

Under the terms of Mr Johnson’s withdrawal agreement, if the UK formally leaves the EU on 31 January it will enter an 11-month transition period to 31 December during which talks on future trade and security relations will be conducted.

Mr Johnson’s claim that the future relationship talks - including a comprehensive free trade agreement - can be concluded within this time are regarded by most trade experts as extremely optimistic, as similar deals generally take several years of complex and painstaking work.

The EU has offered a two-year extension to the end of 2022 to allow time for negotiations, with a requirement for the UK to apply to extend by June next year.

But the Conservative manifesto states firmly: “We will negotiate a trade agreement next year – one that will strengthen our Union – and we will not extend the implementation period beyond December 2020.”

The commitment raises the prospect that in order to avoid the sharply increased tariffs and possible disruption to transport and supplies of food and medicine, Mr Johnson will be forced to accept whatever deal is on offer from Brussels at the time.

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