Brexit could force Osborne to extend UK austerity by two years

Leaving the European Union could add tens of billions of pounds to U.K. government borrowing and force Chancellor of the Exchequer George Osborne to extend austerity into the next decade, according to the Institute for Fiscal Studies. Instead of returning to surplus in the 2019-2020 fiscal year as currently planned, Britain may face a budget deficit of as much as 30 billion pounds ($44 billion) if Britons vote for a so-called Brexit next month, the London-based IFS said in a report published Wednesday. “Getting to budget balance from there, as the government desires, would require an additional year or two of austerity at current rates of spending cuts,” said IFS Director Paul Johnson. “Or we could live with higher borrowing and debt.” The intervention of the non-partisan IFS is a major boost for Osborne as he presses the economic case for remaining in the EU in the June 23 referendum. It comes two days after the Treasury warned that a vote to quit the bloc could plunge Britain into a recession and push up net borrowing by 39 billion pounds over the next two years. ‘Significantly Higher’ The IFS based its analysis on the less pessimistic forecasts of the National Institute of Economic and Social Research, which sees a Brexit leading to an output loss of between 2.1 percent and 3.5 percent in 2019 relative to current forecasts. The IFS predicts the budget could take a 20 billion-pound hit in its more optimistic scenario or 40 billion pounds in the worse case in 2019-20. Official forecasts are for a surplus of 10.4 billion pounds that year. The institute suggests a vote to end membership of the EU could force Osborne to abandon his key fiscal rule, a commitment to balance the books by the end of the decade. Even under the more optimistic scenario, the fiscal tightening needed to meet that target would be the equivalent of an additional 5 billion pounds of cuts to public services, 5 billion pounds of welfare reductions and a tax increase of more than 5 billion pounds, the IFS estimated. The report “further underlines what a disaster it would be for the U.K. to risk a Tory Brexit under the chancellor’s recovery built on sand,” John McDonnell, the finance spokesman for the opposition Labour Party, said in an e-mailed statement. EU Budget Even a 0.6 percent fall in national income would be enough to offset the savings on the net contributions Britain makes to the EU budget, according to the IFS. These payments currently total 8 billion pounds a year, and the bill would fall to 4 billion pounds if Britain wanted to retain its membership of the European Economic Area, it said. The IFS is the latest organization to highlight the costs of leaving the EU. following similar warnings from the Bank of England, the International Monetary Fund and the Organization for Economic Cooperation and Development. These have been dismissed by Brexit campaigners, who say Britain would see stronger growth and lower immigration outside the 28-nation bloc.