Chancellor George Osborne abandons 2020 budget surplus plan

 George Osborne - credit PA

George Osborne has abandoned his target to restore government finances to a surplus by 2020.

In his March Budget, the Chancellor pledged to reach a budget surplus of £10bn by 2020 - despite critics arguing success was unlikely.

But following the shock referendum result to quit the EU last week, Mr Osborne said the UK had to be "realistic about achieving a surplus by the end of the decade".

He said Brexit was likely to “lead to a significant negative shock for the British economy” and had shown "clear" signs of doing so already.

RELATED CONTENT

Interest rates could fall as the economy suffers 'post-traumatic stress' of Brexit, says Mark Carney

George Osborne's Brexit budget warning sees 57 Tory MPs revolt

Addressing business leaders at the Greater Manchester Chamber of Commerce, Osborne argued:

"The Government must provide fiscal credibility, so we will continue to be tough on the deficit but we must be realistic about achieving a surplus by the end of this decade.

“This is precisely the flexibility that our rules provide for. And we need to 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.”

 Paul Johnson, director of the Institute for Fiscal Studies, said it would have been "frankly implausible" to stick to the planned deficit. 

He said a result of voting Brexit, "the economy is clearly going to go into a down-swing". 

Johnson told the BBC's World at One: "But my guess is this is not the end of austerity, actually it means austerity will just go on for longer because we will probably have the spending cuts and tax rises right through the 2020s to pay for this."

Shadow Chancellor John McDonnell said: "I welcome the Chancellor’s decision to finally listen to the calls made by myself and Jeremy Corbyn over the last nine months to drop his failed surplus target. It is only a shame he was not realistic sooner, as under Jeremy Corbyn, Labour has been unequivocal in its opposition to failed Tory austerity.

“Sadly the vote last Thursday for Brexit has only brought forward what was inevitable. The Chancellor had already dropped his other fiscal rules on welfare and debt at the Budget in March, and according to many economists he was expected to be forced to drop this one too.

“The truth is as Labour consistently warned, George Osborne’s recovery built on sand was underpinned by a fiscal rule that is not robust or flexible enough to equip our economy for any potential shocks it may face or to provide the investment that our economy so clearly needs."

During the referendum campaign the Chancellor repeatedly warned against a Leave vote and warned that Brexit would result in an emergency austerity budget.

But he backtracked this week, saying there would be a new Budget when the new Prime Minister was in place.

There is no indication Osborne would be kept on as chancellor following the result of the Conservative leadership contest on 9 September.