George Osborne will warn that he would have to fill the £30bn blackhole in public finances triggered by a vote to leave the European Union by hiking income tax, alcohol and petrol duties and making massive cuts to the NHS, schools and defence.
In a sign of the panic gripping the remain campaign, the chancellor plans to say that the hit to the economy will be so large that he will have little choice but to tear apart Conservative manifesto promises in an emergency budget delivered within weeks of an out vote.
“Far from freeing up money to spend on public services as the leave campaign would like you to believe, quitting the EU would mean less money,” Osborne will say. “Billions less. It’s a lose-lose situation for British families and we shouldn’t risk it.”
The chancellor will spell out his concerns at an event where he will be joined by his predecessor, Alistair Darling. The Labour politician will say he is more worried now than he was during the 2008 financial crisis, arguing that a Brexit vote will result in not just one emergency budget but “one after another”.
The pair will publish an “illustrative budget scorecard” comprising a long list of the sort of measures they say may have to be implementedincluding:
- £15bn of tax rises, comprising a 2p rise in the basic rate of income tax to 22%, a 3p rise in the higher rate to 43% plus a 5% rise in the inheritance tax rate to 45p
- An increase in alcohol and petrol duties by 5%
- Spending cuts worth £15bn, including a 2% reduction for health, defence and education, equivalent to £2.5bn, £1.2bn, £1.15bn a year respectively
- Larger cuts of 5% from policing, transport and local government budgets
Vote Leave, the official out campaign, responded to leaks of the plans by accusing the chancellor of breaking seven key Tory pledges on which they were elected last year, and set out a competing vision of a post-Brexit world in which Britain would claw back money from the EU. The campaign group said that parliament would react to an out vote by bringing in legislation to cut VAT on fuel, boost NHS funding and bring in a points-based system for immigration.
Brexit-supporting Conservative politicians warned that Osborne’s credibility would be damaged and that he and David Cameron could be toppled from their positions in the party.
Steve Baker, a high profile Tory out campaigner, said he was shocked that the chancellor was “threatening to break so many key manifestos on which all Conservative MPs were elected”. And in a sign of the potential Tory rebellion Osborne could face if he does try to drive through the emergency measures, Baker said he would refuse to back the cuts to the NHS or the tax rises for “hard-working families”.
David Campbell Bannerman, a Tory MEP who co-chairs Conservatives for Britain with Baker, said a remain victory won by causing panic on the markets “would lead to an immediate leadership challenge”.
Liam Fox, a former defence secretary and out campaigner, added: “A punishment budget would be rejected by both sides of the House of Commons. It would damage the chancellor’s credibility and would be putting his own position in jeopardy.
“I think the British public would react adversely to such a threat based on the chancellor being afraid they will vote the wrong way in his opinion. The in campaign are panicking – but no one will believe these hysterical prophecies of doom anymore.”
Osborne has accused his opponents of fantasy economics and will instead claim the measures are based on a mid-range estimate of the impact of Brexit by the Institute for Fiscal Studies.
Darling will warn that the outcome of next week’s referendum will not just resonate for five years like a general election but for the next “30, 40, 50 years”, determining “Britain’s place in the world for a generation and more”.
He will also warn that sterling is more volatile now than during the financial crisis, saying that investment decisions are on hold, and that the FTSE hit a three-month low on Tuesday. “For the first time ever, we saw German government bonds offering a negative yield – in other words, investors are paying Germany to look after their money as they seek safe havens,” he will say.
The impact on shares in London and across the continent was dramatic as stock markets tumbled and one analyst declared that “the stench of Brexit was stalking the streets of the City”. The pound also tumbled 1.2% to below $1.41, its lowest for two months – and James Daunt, the boss of book retailer Waterstone’s, warned that his company would have to cut jobs if the UK voted out, predicting the upheaval would trigger a “significant retail downturn.”
Vote Leave said it believes an out vote should be followed by a negotiation strategy for informal talks that will lead to a new UK-EU treaty, immediate legislation in parliament, and a framework for legislation and policy decisions between 2016 and 2020.
The centrepiece would be the repeal by the end of the decade of the 1972 European Communities Act, which gives EU law supremacy over the UK. The group, led by Boris Johnson and Michael Gove, says that a new settlement with the EU could be negotiated by a general election in May 2020.
Chris Grayling, the leader of the House of Commons, said: “After we vote leave, the public need to see that there is immediate action to take back control from the EU. We will need a carefully managed negotiation process and some major legislative changes before 2020, including taking real steps to limit immigration, to abolish VAT on fuel and tampons, and to end the situation where an international court can tell us who we can and cannot deport.”
On Tuesday, Jeremy Corbyn mounted an unusually forceful attack on Johnson and Nigel Farage over their claims to be defending the NHS, as he urged Labour voters to cast their ballot for remain. At a trade union event, he accused them of being “wolves in sheep’s clothing”g as they are actually putting the health service in jeopardy by campaigning to leave the EU.
The Labour leader also said the Brexit camp was telling “outright lies” when it claimed that more money would be available for the NHS after leaving the EU.
Pro-leave Labour MP John Mann said: “Alistair Darling is backing George Osborne’s new austerity budget. Instead he should be joining us in campaigning to leave the EU to help remove the need for further Osborne-imposed austerity.
“This is more scare tactics from the remain side. If we vote to leave and take control of our money we will have more to spend on the priorities that matter to us like the NHS.”
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