The first independent economic analysis of the Government’s proposed Brexit deal shows it would reduce the value of the UK’s economy by 3.9 per cent - or £100 billion a year by 2030 - compared to staying in the European Union.
This would be an average cost of more than £1,000 a person and is the equivalent of losing the economic output of Wales or the City of London.
After weeks in which debate has been dominated by other criticisms of the deal, publication of the report from the National Institute for Economic and Social Research (NIESR) today will enable MPs and voters to assess the economic impact of Brexit on trade, wages, tax revenue and investment,
The report, commissioned by the People’s Vote campaign but conducted independently by Britain’s longest-established economic think-tank, models different Brexit scenarios against a baseline of staying in the EU. This shows that the Government’s preferred outcome - leaving in March 2019 and entering a transition period lasting until December 2020 before moving to a free trade agreement (FTA) with the EU there would have been a catastrophic reduction in trade and investment.
Although the proposed UK deal envisages no tariffs or quantitative restrictions, the UK would not enjoy Norway’s full access to the EU’s Single Market through the European Economic Area or Switzerland’s comprehensive regulatory alignment through bilateral agreements that allow free movement of labour.
By 2030, at the end of the first decade outside the EU, this would have the following consequences:
- The UK’s Gross Domestic Product would fall by 3.9 per cent - or £100 billion annually
- GDP per head would fall by 3 per cent a year, amounting to an average cost per person a year of £1,090 at today’s prices.
- Total trade between the UK and the EU would fall by 46 per cent.
- Foreign Direct Investment would fall by 21 per cent.
- Labour productivity would fall by 1.3 per cent.
- Tax revenue would fall by 1.5 – 2 per cent, the equivalent of £18-23 billion less to spend on public services at today’s prices.
The report underlines how continued uncertainty from the proposed deal’s lack of clarity about the UK relationship with the EU or the rest of the world means “business investment and economic activity is likely to continue to be even lower”. But, because it is impossible to forecast accurately the scale of this damage compared to staying in the EU, no figure is given for it and this study is therefore likely to be a conservative estimate of Brexit’s final cost.
“Our key finding is that if the Government’s proposed Brexit deal is implemented so that the UK leaves the EU Customs Union and Single Market in 2021, then by 2030 GDP will be around 4 per cent lower than it would have been had the UK stayed in the EU. This is largely because higher impediments to services trade make it less attractive to sell services from the UK. This discourages investment in the UK and ultimately means that UK workers are less productive than they would have been if the UK had stayed in the EU.”
The report also modelled alternative Brexit outcomes against staying in the European Union. This showed that remaining in a customs union beyond the transition period, possibly through invoking the so-called Irish “backstop”, would still mean a hit to GDP of 2.8 per cent a year, the equivalent of £70 billion a year.
Another scenario, favoured by some Brexit supporters, of an “orderly no deal” departure from the EU would reduce GDP by 5.5 per cent, or £140 billion a year.
The report will be formally unveiled today at a press conference led by three former business ministers: Sir Vince Cable, the MP for Twickenham and leader of the Liberal Democrats, Pat McFadden, the Labour MP for Wolverhampton South East; and Anna Soubry, the Conservative MP for Broxtowe.
Sir Vince Cable said:
“This proposed Brexit deal is an absolute mess. It leaves Britain with less say over key decisions than we already have as a member of the EU and today’s report also shows how it will leave our country poorer. Nobody voted for less control or to be worse off but somehow the government have managed to come up with something that will achieve both. This is a million miles from what the Brexiters promised two years ago and will create decades of uncertainty for business and investors. It is just a promise of jam tomorrow from a government that has so far delivered nothing but chaos.
“If anything, the bleak predictions contained in this report are an under-estimate of severe damage our economy will suffer in the future of this deal goes ahead because it takes no account of the draining away of confidence in business and the impact on investors who no longer see the UK as a gateway to Europe. The only way to resolve this looming crisis is for MPs to hand such a crucial decision back to the British people by giving them the final say on Brexit through a People’s Vote.”
Pat McFadden said:
“The Government used to tell us that ‘no deal was better than a bad deal’. Now it is insisting that we have to accept this really terrible deal because no deal would be even worse: it is a humiliating choice and false one. This report shows that the reality of this deal will leave Britain tens of billions of pounds poorer than if we stuck with the deal we’ve got – inside the EU. That should be the real choice offered to the British people now. If the Prime Minister cannot get her deal through Parliament the right thing is to go back to the public and give them the final say, this time setting the reality of Brexit against the option of staying in.”
Notes to editors:
- Summary of long-run economic impact of different Brexit scenarios
- The full report can be downloaded here.