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Why a tax cut may get us through the No Deal misery

The Chancellor paid tribute to the teachers who helped him build his career: PA
The Chancellor paid tribute to the teachers who helped him build his career: PA

To paraphrase Mandy Rice-Davies: They would say that, wouldn’t they? Senior bankers talking Brexit with Chancellor Sajid Javid yesterday moved in lockstep to call for less tax and regulation on banks to beat off competition from their foreign rivals.

But what hasn’t been so widely reported was the lobbying from some chief executives present that, if it must steer us into a no-deal Brexit, Downing Street should turn on the fiscal spending taps to get us over the inevitable economic shock, and fast.

You can see their point. Interest rates have been so low, for so long, that there simply isn’t any ammunition left in the monetary policy magazine to avert a no-deal economic crisis.

The 21st-century technique of cutting rates to get through external shocks has run its course.

Javid will have to start spending again. And the most effective way of doing that to boost the economy? Follow the Trump model and cut personal and business taxes. Quickly and dramatically.

Tomorrow sees Javid launch his spending review with widely trailed funding boosts for schools, police, hospitals and local government.

Some economists are already anxious about him “losing control” of the finances. Nonsense. Total spending will remain within the fiscal rules to keep borrowing under 2% of national income.

But if we crash out of the EU in October, he should loosen those rules and cut taxes.

Sure, debt levels will rise, as will gilt yields (cue cheers from savers), but the UK has one of the lowest fiscal deficits in the developed world. We can afford it.

Indeed, if we are to damage our economy with a no-deal Brexit, we can’t afford not to.