This article was originally published on Finsbury.com
The Government has far less money than it thought it would have only six months ago, with borrowing up £122 billion over the next five years. This troubles May and Hammond less than it would have their predecessors, as they have largely abandoned the austerity agenda that has shaped Government decisions since 2010.
As anticipated, extra money has been found for infrastructure spending, R&D investment and those whom May calls the “just about managing”, now enthusiastically referred to as the JAMs.
Of the extra £122 billion in borrowing, £58.7 billion is the direct result of the referendum having caused potential economic output growth to fall by 2.4 percentage points over five years. This means that the previously forecast surpluses for 2019 and 2020 have now been replaced by deficits.
The deteriorating fiscal position means the Government will continue to have relatively little money to appease aggrieved voters. This makes the Government vulnerable to internal conflict and external pressure, although even with a small majority, they will be comforted by the continued unpopularity and of the opposition Labour Party.
Companies will need to be flexible if they are to navigate this political terrain. The uncertainty over Brexit in particular gives companies a short-term opportunity to be helpful to Government to improving its understanding of how Brexit might affect the economy. The benefit in doing this before the Government establishes its priorities for Brexit cannot be overstated.
With its expert team drawn directly from a range of senior roles in government and politics, Finsbury stands ready to help.