In the wake of Brexit, the new Chancellor has announced a ‘reset’ of fiscal policy — but significant uncertainty remains both around the short- and long-term prospects for the economy.
Many have taken this as a signal for an ‘end of austerity’, with no more cuts in current spending and a significant short-term expansion in infrastructure. In reality, however, the long-term fiscal challenges for Britain remain as great as ever, while it is not yet clear that Britain needs any more short-term stimulus.
In this briefing note, we look at three of the big questions facing the new Chancellor on Wednesday:
- The UK economy has surprised many on the upside since the referendum, but significant uncertainty remains around the medium term. What are the fiscal consequences of Brexit, and are we likely to need a fiscal stimulus?
- The Government now seems unlikely to run a balanced budget by 2020. What should the new fiscal rule be? How can we improve the long-term sustainability of the public finances?
- The UK has historically invested far less in public infrastructure than other OECD countries, and this is often seen a barrier to long-term competitiveness. Is now a good time for a significant expansion in infrastructure spending?