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Business

UK Shelves Balanced Budget Goal as Brexit Vote Roils Economy

UK's minister of finance announces changes to deficit prediction amidst economic fallout following referendum result

Uncertainty about the UK's future ties with the EU is weighing heavily on the British economy, prompting Treasury chief George Osborne to announce he was abandoning the government's long-held goal of achieving a budget surplus by 2020, photo: Danny Lawson/PA, via AP
1 year ago

LONDON  — Britain’s Treasury chief on Friday abandoned the government’s long-held goal of balancing the nation’s books by 2020, warning that the country’s vote to leave the European Union had sent shock waves and instability throughout the U.K. economy.

In a sign of that uncertainty, a leading contender to become the country’s next prime minister said he would not trigger formal EU exit talks before next year — even as senior European officials urged Britain to hurry up and go.

George Osborne, Britain’s finance minister, said the referendum result is “likely to lead to a significant negative shock for the British economy.”

“We will continue to be tough on the deficit but we must be realistic about achieving a surplus by the end of this decade,” he said in a speech in Manchester, northwest England.

The Conservative government elected in 2010 has cut billions from public spending in a bid to eliminate a budget deficit that’s expected to hit 75.6 billion pounds ($100 billion) this year. Before the EU referendum last week, the Office For Budget Responsibility had forecast a budget surplus of 10.4 billion pounds in 2019-20.

Osborne, who argued during the campaign that Britain should stay in the EU, had estimated that a vote to leave would hurt public finances to the tune of 30 billion pounds. He said Britain must “reduce uncertainty by moving as quickly as possible to a new relationship with Europe and being super competitive, open for business and free trading. That’s the plan and we must set to it.”

Those who campaigned for a British exit, or Brexit, say any economic pain will be temporary, and that leaving the EU will open up new trading possibilities with other regions.

But that could be a long way off. Prime Minister David Cameron announced his resignation after losing the referendum and said his successor should oversee EU exit talks. Five Conservative lawmakers are vying to replace him in a contest whose winner will be announced Sept. 9

The new leader will be the person to invoke Article 50 of the EU constitution — the formal mechanism that begins two years of divorce negotiations.

Michael Gove speaks at the Policy Exchange in London, where he set out his case for becoming prime minister, Friday July 1, 2016. photo: Stefan Rousseau / PA via AP

Michael Gove speaks at the Policy Exchange in London, where he set out his case for becoming prime minister, Friday July 1, 2016. Photo: Stefan Rousseau/PA, via AP

One of the Conservative front-runners, Justice Secretary Michael Gove, said Friday that he was passionately committed to leaving the EU — but had “no expectation that Article 50 would be triggered in this calendar year.”

Gove also said he would “only trigger it after extensive preliminary talks” — even though EU officials have said no such talks can be held until Article 50 is invoked.

Gove’s comments are likely to annoy EU leaders, who have put strong pressure on Britain to start talks soon on leaving the 28-nation bloc.

German Foreign Minister Frank-Walter Steinmeier told news website Spiegel Online that “what we can expect from London, and quickly, is a timetable for when exit negotiations with the EU are supposed to begin and how the British foresee these negotiations.”

But like other German and European officials this week, he didn’t define what he meant by “quickly.”

Gove also said he would not call an early election to seek a personal mandate for change. Britain’s next scheduled election is in 2020.

Gove, one of the leaders of the victorious campaign to quit the alliance, said at a campaign launch that the next Conservative leader should be a true supporter of Brexit — a cause he has espoused for 20 years. That was a slap at his leading rival for the Tory leadership, Home Secretary Theresa May, who backed the “remain” campaign

Also in the running are Work and Pensions Secretary Stephen Crabb, Energy Minister Andrea Leadsom and former Defense Secretary Liam Fox.

“The best person to lead Britain out of the European Union is someone who argued to get Britain out of the European Union,” Gove said. “This country voted for change, and I am going to deliver it.”

Gove’s surprise entry into the leadership race led former London Mayor Boris Johnson — his erstwhile ally in the EU “leave” campaign — to drop out Thursday. Gove had been expected to back Johnson for the top job, and some Conservatives are furious at his betrayal.

Kenneth Clarke, a former justice secretary, said Friday that Gove “would all do us a favor if he were to stand down now.” Clarke said a leader needed to have “the trust, as far as possible, of your colleagues.”

Gove said he was a reluctant candidate aware of his limitations — “whatever charisma is, I don’t have it.” He claimed that “I did almost everything I could not to be a candidate for leadership of this party.”

But he said while Johnson had campaigned “with passion and brio,” he had concluded the flamboyant former mayor did not have what it took to be prime minister.

Conservative lawmakers will whittle the field down to two leadership candidates before the final decision is made by a postal vote of all party members.

Several Cabinet ministers have announced their support for May, considered a tough politician capable of standing up to EU officials. Transport Secretary Patrick McLoughlin said “her track record shows that when Theresa arrives in Brussels, Europe’s bosses sit up and listen.”

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