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Osborne abandons 2020 spending surplus commitment

Chancellor George Osborne has abandoned his commitment to return government spending to a surplus by 2020, warning an economic downturn is likely following the UK’s vote to leave the EU.

Last week’s referendum result has had a dramatic political and economic impact on Britain, leading to the UK losing its AAA credit rating and the pound falling to a 30-year low. Prime minister David Cameron has resigned and opposition leader Jeremy Corbyn is facing widespread Labour party mutiny.

Yesterday Mark Carney, the governor of the Bank of England, suggested that interest rates, already at a historic low of 0.5%, will have to be cut further.

In a speech to the Greater Manchester Chamber of Commerce, Osborne said: “Now, as the governor of the Bank of England said yesterday, the referendum result is, as expected, likely to lead to a significant negative shock for the British economy. How we respond will determine the impact on people’s jobs and on economic growth.

“The Bank of England can support demand. 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.”

Osborne’s drive to cut the government deficit has been a major cause of local government spending cuts. A survey of local authority CEOs before the referendum found that over 80% believe some councils will fail to deliver essential services in the next three years, and public service leaders have warned that services will be further hit by the economic impact of leaving the EU.

John McDonnell, the shadow Labour chancellor, said: “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.”

He called on the chancellor to release evidence passed to him by the Office for Budget Responsibility and said the chancellor should bring forward “shovel-ready projects” in deprived areas to support the economy.

(Image c. Stefan Rousseau from AP/ Press Association Images)

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