The UK is in line for a Brexit dividend if a good deal is secured, Philip Hammond said as independent forecasters warned crashing out risks a “severe short-term” hit on the economy.
The Chancellor insisted he was confident an agreement with the EU could be secured but announced he was ploughing an extra £500m into preparations for a no-deal exit, taking the total to £4.2bn. Anti-Brexit campaigners claimed the Budget was proof that quitting the bloc would lead to “years of extended pain”. Analysis by the Office for Budget Responsibility (OBR) said the scale of the impact of leaving without a deal was hard to predict.
It said: “A disorderly one could have severe short-term implications for the economy, the exchange rate, asset prices and the public finances.”
Mr Hammond said he was “retaining firepower to intervene” if the economy needs more support in the coming months, with £15bn in fiscal “headroom” to deploy.
If the economy begins to tank, the Chancellor insisted he would “take whatever action is necessary”, including upgrading his spring statement to a Budget.
Mr Hammond said he was “confident” the Brexit talks would deliver an agreement that would allow extra cash to be spent on public services.
Additional funding for the NHS would not be hit by a no-deal exit but cash for other public spending would be “flat real”, keeping pace with inflation, according to Treasury sources.
Mr Hammond said: “We are at a pivotal moment in our EU negotiations and the stakes could not be higher.
“Get it right, and we will not only protect Britain’s jobs, businesses and prosperity but we will also harvest a double-deal dividend, a boost from the end of uncertainty and a boost from releasing some of the fiscal headroom I am holding in reserve at
the moment. We are confident that we will secure a deal which delivers that dividend, confident, but not complacent, so we will continue to plan for all eventualities.”
Labour’s Chris Leslie, a former shadow chancellor and supporter of the People’s Vote campaign for a fresh referendum, said forecast economic growth of no higher than 1.6% a year was “a pathetic figure in anyone’s book”.
He said: “There is no Brexit dividend, only years of extended pain. The Budget actually predicts Britain’s trade will decrease as a share of the economy in the next five years. This is not global Britain but a Britain shrinking in power and influence in the world.”