A smooth Brexit that offers frictionless trade with the European Union will give the Treasury a double bonus in the budget, the chancellor has said, allowing him to boost public spending and consider cutting taxes.
Philip Hammond said a deal with Brussels offering open trade with the EU would free up much of the £15.4bn he had saved this year to act as a buffer against a no-deal Brexit.
It would also allow the Office for Budget Responsibility to revise its predictions for GDP growth over the next five years, which it cut in the aftermath of the referendum result. The OBR, which is the Treasury’s independent forecaster, could give back up to £15bn of revenues that it said would be lost following a basic agreement to leave the EU.
In a clear message to Tory backbenchers who oppose Theresa May’s proposals to stay inside a customs union with the EU indefinitely, Hammond said extra spending on services such as the NHS, debt reduction and tax cuts would be possible if they backed the prime minister when the deal is voted on in the Commons.
Speaking in Bali, where he was attending the International Monetary Fund’s annual meeting, he said: “If we are successful in negotiating that package there will be an upside dividend in terms of the economy and consequently the fiscal numbers.
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