Chancellor George Osborne said yesterday he would introduce an emergency budget if Britain voted to leave the EU, but 57 of his own Conservative Party’s lawmakers said they would block his spending cuts and tax hikes.
The escalation in the ruling party’s internal war over the EU raised the prospect of a government unable to operate normally in the event of a victory for ‘leave’ in a June 23 referendum on whether to stay in the bloc.
With opinion polls showing momentum swinging towards ‘Leave’, the chief executive of aerospace and engineering group Rolls-Royce wrote to British staff warning that a so-called Brexit could result in important investment decisions being postponed.
Osborne, who along with Prime Minister David Cameron is leading efforts to keep Britain in, said he would have to respond to a Leave vote with tax rises and spending cuts worth £30 billion.
The one thing worse than not passing a budget like that is dealing with an economic tailspin
Measures could include a two-point rise in the basic rate of income tax to 22 per cent and increases in tax rates and duties on alcohol and petrol, while spending on health, education and defence could be cut by two per cent.
The official Vote Leave campaign hit back with a statement signed by 57 Conservative lawmakers who said they would block the proposed measures in parliament.
The government currently has a working majority of 17 in the House of Commons. The opposition Labour Party, which has 229 lawmakers to the Conservatives’ 330, would oppose the emergency budget, its leader Jeremy Corbyn told the House.
“The one thing worse than not passing a budget like that is dealing with an economic tailspin, or the complete loss of confidence in the ability of the country to manage its money,” Osborne said.
Some independent economists said Osborne’s promise of a tighter budget after an ‘out’ vote could make it harder for Britain’s economy to cope with its uncertain future.
“In the short run, tax increases or spending cuts would be entirely the wrong response to a Brexit shock,” Jonathan Portes, principal research fellow at the National Institute of Economic and Social Research, a think-tank, said.
An opinion poll published late on Tuesday showed the once double-digit lead of the ‘in’ campaign had narrowed to just one percentage point.
Other polls have shown the ‘out’ camp ahead, reducing the value of sterling and wiping billions of dollars off global stock markets.
Markets have been increasingly jittery in the run-up to the vote and sterling has reacted sharply to some opinion polls.
Housebuilder Berkeley reported a 20 per cent drop in reservations of new homes in the first five months of the year, saying buyers were telling the company they were holding off until after the referendum.
Osborne gave his speech alongside his predecessor as finance minister, Labour’s Alistair Darling.
The Vote Leave campaign rejected that assertion, publishing what it said was a post-Brexit roadmap. This called for informal talks with EU countries ahead of a formal negotiation for a new EU-Britain treaty and immediate legislation to make emergency provisions for the transition period.