Britain will need to curb public spending further or raise taxes if leaving the European Union does long-term damage to economic growth, underscoring the importance of the country striking new trade deals, the government’s budget watchdog said on Thursday. The Office for Budget Responsibility said ensuring robust trade agreements was more significant for the long-run health of Britain’s public finances than the size of any ‘divorce bill’ to settle one-off liabilities with the EU.
“While some numbers mooted for it are very large, a one-off hit of this sort would not pose a big threat to fiscal sustainability. More important are the implications of whatever agreements are reached with the EU … for the long-term growth of the UK economy,” the OBR said. Just a 0.1 percentage-point fall in the annual growth rate of the economy and tax revenues would cause Britain’s debt-to-GDP ratio to be 50 percentage points higher after 50 years, if public spending plans remained unchanged, the public body added. A continuation of Britain’s recent weak productivity would also make tax rises or spending cuts more likely, the OBR said.
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Finance minister Philip Hammond said the report was “a stark reminder of why we must deliver on our commitment to deal with our country’s debts”.