Sajid Javid, the chancellor, will today set out plans to pump billions of pounds into the British economy in the event of a no-deal Brexit, saying that he is preparing a “significant policy response” and hinting the Bank of England would join in with the stimulus.
Mr Javid, in a speech to the Conservative party conference, will promise to take measures to offset the shock of a disorderly exit, although he admitted on Monday he could not say how great the damage to the economy would be.
“I don’t think anyone knows the full proper answer to that question,” he told the BBC’s Today programme ahead of the speech. The independent Office for Budget Responsibility has warned that even a relatively benign no-deal exit would cost the exchequer £30bn.
In defining the significant policy response, the chancellor said the BoE “will almost certainly think about a monetary policy response” while the Treasury would implement a “fiscal and other policy response” to counter some of the effects of a no-deal exit.
Although the chancellor said the central bank’s actions would be a matter for independent policymakers, he was clear he expected interest rate cuts at a time when the BoE has been studious in insisting that any policy response could go in either direction.
The BoE declined to comment on its likely monetary response. A spokesperson said any response would depend on the balance of effects of a no-deal Brexit on “demand, supply and the sterling exchange rate”.
Mr Javid’s promise of a significant economic government intervention, likely to include a fiscal stimulus and help for individual sectors most exposed to trade with the EU, will heighten questions about his stewardship of the public finances.
In recent days the chancellor has endorsed a big increase in public spending, including pledging significant funding for England’s roads and a new hospital building programme, at a time when the country’s economic outlook is highly uncertain.
Philip Hammond, the former chancellor, said that any spending announcements should be delayed until after the final shape of Brexit, scheduled to take effect on October 31, was known.
He had built in “headroom” of £26bn into his fiscal plans, closer to £10bn after an adjustment to cover the treatment of student loans and corporation tax in the public accounts, to help counter the shock of a no-deal exit. But more than this amount was already committed in the spending review in early September, so that there is no money left within the government’s current fiscal rules to implement a no-deal Brexit fiscal response.
Mr Javid is spending that headroom despite the uncertainty over Brexit and with recent data suggesting the government is on course to miss its own fiscal targets. He plans to rewrite the fiscal rules in his autumn Budget.
Mr Javid insisted in his interview with the BBC that the government wanted a Brexit deal but claimed that Britain would leave on October 31 in spite of a new law being in place to prevent a no-deal exit. He said business wanted “an end to uncertainty” in all circumstances.
The chancellor’s conference speech will be overshadowed on Monday by continuing controversy over Boris Johnson’s personal conduct, after Sunday Times journalist Charlotte Edwardes claimed he touched her thigh at a lunch in the 1990s.
“I’ve talked to the PM about that,” Mr Javid said. “He couldn’t have been any clearer. They [the allegations] are completely untrue and I totally trust him on that.”
Labour party leader Jeremy Corbyn and other opposition leaders will meet in Westminster on Monday to discuss how to put further pressure on Mr Johnson over Brexit, although the prospects of them agreeing to hold an early vote of no confidence in the prime minister are receding.
Dominic Grieve, former Tory attorney-general, said the so-called Benn Act, which requires Mr Johnson to seek a delay to Brexit if he cannot secure a deal by October 19, was “fit for purpose” and that parliament would act if the prime minister tried to use “a dodge” to get around it.
