Wednesday, 20 May 2020
Department of Finance
124. To ask the Minister for Finance the projected cost to the Exchequer in the event of a failure to agree a trade agreement between the European Union and the UK; and if he will make a statement on the matter. [6723/20]
As the Deputy may recall, Budget 2020 was framed on the assumption of a disorderly Brexit. While the fiscal and economic circumstances have changed dramatically, the magnitude of the projected ‘fiscal swing’ forecast under such a scenario may be indicative of the potential impact of the transition period ending without a trade arrangement.
In nominal terms, the Budget 2020 forecast for 2020 projected a general government deficit of some €2.0 billion, compared to the SPU forecast (previous April) of a general government surplus of €1.2 billion. At the time, this negative 'swing' was broadly indicative of the fiscal cost of a disorderly Brexit.
These projections were point in time forecasts published in October of last year. Since then, the fiscal and economic situation has evolved significantly, including, but not limited to, the effect of the Covid-19 pandemic.
At best, October's forecast can be seen as an indication of the scale of the economic and fiscal impact of the transition period ending without a trade deal. An updated estimate - taking into account the present circumstances - may differ significantly from these historic figures.
As set out in the recently published Stability Programme Update, the combined effect of the Covid shock with a disorderly UK exit would have severe implications for the economy and, accordingly, for the public finances.
Trade negotiations between the EU and UK are ongoing and the outcome is highly uncertain. The full set of economic and fiscal forecasts will be updated by my Department as part of the Budget 2021 process.