The announcements Philip Hammond should make to prepare the country for a no-deal Brexit

The announcements Philip Hammond should make to prepare the country for a no-deal Brexit

With deadline day only weeks away, the possibility of the UK leaving without a deal cannot be ignored.

It would be irresponsible not to think seriously about what the impact of that would be, and what the appropriate response should be from government. If we really did leave without a deal, the Government would need to take immediate action to maintain confidence and steady the ship.

With that in mind, the Centre for Policy Studies has published a new paper, A Budget for No Deal, setting out some ideas for how best to manage that scenario and make the most of No Deal. This is not to play down the potential shock the economy could face in such circumstances, or to suggest that there would not still be significant challenges even if the Government responded with sensible measures. But government policy can play a significant role in cushioning the impact for businesses and consumers, and smoothing the transition to life outside the EU. As Philip Hammond has made clear, the progress the Government has made in reducing the deficit means he has fiscal policy levers at his disposal if a deal is not forthcoming.

The first important issue to address would be the need to maintain business confidence and support investment. While the economy has in some ways defied expectations since the 2016 referendum – especially on employment – investment has been noticeably slow. In the event of no deal, the danger is that many of those businesses which have been putting off investment decisions may opt to put their money elsewhere. In order to combat this, the Government will need to send a decisive message that Britain is the best place in the world to do business.

One of the key proposals from the CPS paper is to make the Annual Investment Allowance unlimited, allowing companies to write off all investment in plant and machinery for tax purposes. That provides a significant incentive for businesses to boost their capital expenditure and make the sorts of improvements the UK economy needs if it is to solve its perennial productivity problem. Alongside this, bringing forward the planned reduction in Corporation Tax by a year, plus a one-year 25% cut in business rates and employer’s NICs bills for small businesses, would help companies through a difficult period following a no-deal exit. The Government could also take steps to boost construction, fast-tracking key infrastructure projects and planning permission for new housing.

Sterling depreciation would also push up prices in the near term, hurting the real incomes of working families. To cushion that, the Government should raise the National Insurance threshold for employees to £12,500 per annum, the same level to which the Income Tax personal allowance is due to rise. This idea of a combined ‘Universal Working Income’ was proposed by my colleague Tom Clougherty in a paper in November, Make Work Pay. It would mean the average worker paying £620 less in tax next year compared to today.

Of course, higher inflation would not only hit working families, so welfare benefits and pensions should also be taken into account. In particular, it would not be fair to maintain the freeze on working-age benefits if inflation is running substantially above the level that was expected when the policy was initiated. In addition, the Government should make the funds available to councils to allow all Council Tax bills to be frozen for 2019-20.

Finally, the Government should also look to make the British economy as open and global as possible, and support trade flows. The first step should be a well-funded and easily accessible ‘one stop shop’ to help exporting businesses deal with new trading arrangements post-Brexit, plus a £2,000 voucher which firms could spend on legal and professional advice related to Brexit.

The Government should take the opportunity to abolish as many tariffs as possible, to deliver lower prices for UK consumers and businesses, while recognising the needs and unique circumstances of some domestic producers who might face problems if all protection was suddenly removed. The Government should also look at establishing a new generation of ‘free ports’, providing targeted incentives to boost trade, investment and job creation, including in some of the most deprived areas of the UK.

Many other ideas, along with lots more detail, can be found in the report itself.

Most ministers are crossing all of their fingers and toes that a no-deal Brexit can be avoided. But as things stand, it is only right to start thinking about what to do if things don’t go to plan.