Corbyn Government would be better than no-deal Brexit - IFS
Revoking Brexit best outcome for UK economic growth
The “most optimistic outlook” for UK economic growth for at least the next three years would be under a Jeremy Corbyn Government, according to the Institute of Fiscal Studies (IFS).
In its latest Green Budget, produced in association with investment bank Citi, the IFS put four Brexit scenarios under the microscope ahead of the current 31 October deadline and a potential general election.
It found that a no-deal Brexit would hit the economy hardest and be "considerably worse" than all other possibilities, "even under a relatively benign scenario", according to Benjamin Nabarro and Christian Schulz, the authors of the chapter in the report.
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They said: "We assume this would happen under a Conservative-led government, which would implement further fiscal loosening totalling 2% of GDP. Interest rates are cut to zero alongside £50bn of quantitative easing.
"Private consumption and investment growth falls while net trade is also a drag on growth. Overall, the economy does not grow over the next two years, and grows by just 1.1% in 2022."
In contrast, Nabarro and Schulz found that revoking Brexit altogether would "lead to the best economic outcome".
The authors explained: "We assume this would require a Labour-led government which, as well as revoking Brexit, would also implement significant tax and spending increases, an overall fiscal loosening and some tightening of labour market regulations. Interest rates would also rise more quickly. This might result in growth of 2% a year."
Crucially, they added, this second scenario involves a Labour-led coalition, rather than a majority Labour government, meaning it were not able to implement its "more radical structural reforms" outlined in its 2017 manifesto.
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Should Labour secure a majority and implement its full manifesto, Nabarro and Schultz said it "would offset at least some of the economic benefits of remaining in the EU".
"Widespread nationalisations, handing 10% of share capital of large companies to employees while redirecting some dividends to the Treasury, or other policies that might reduce private sector investment significantly, would challenge the UK's traditional ‘business model' and risk damaging growth by an amount it is not possible to quantify", they countered.
However, "unlike Brexit, at least some of these policies will be reversible under future governments".
That said, the IFS's base case is for a further delay to Brexit on 31 October. In this scenario, it assumes further fiscal loosening of between 1% and 2% of GDP with a chance of small rate cuts. Growth would then remain below 1% in 2020 before picking up slightly to 1.5% in 2021 and 2022.
Should the UK secure a deal to leave the EU, growth would be narrowly better, at 1.5% per year in the short term. This deal would be accompanied by tax cuts and spending increases.
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