New Research - Counting the Economic Cost of Brexit so Far - People's Vote

New Research - Counting the Economic Cost of Brexit so Far

New research by the People’s Vote campaign has compiled some of the economic costs of Brexit so far. These are all costs that have already been incurred as a result of Brexit, before the UK has even officially left the European Union.

The costs include:

  • More than £40 billion a year lost to the economy
  • Resulting in at least £14 billion a year in lost tax revenues
  • £404 added to shopping bills by inflation
  • Business investment lower by £8 billion a quarter
  • Car industry investment nearly halves

Commenting, Ian Murray MP, leading supporter of People’s Vote, said:

“Brexit is already making us all worse-off, costing jobs and damaging investment in our country – and that’s before we’ve even officially left the EU. This is not what anyone was promised during the EU referendum – no-one voted to be poorer.

“In 2016, Brexiters promised that leaving the EU would lead to a more prosperous future, with new trade deals, piles of extra money for the NHS and more jobs and investment in our country – but what’s being delivered is the complete opposite. A poorer economy meaning less money for public services, damage to trade and jobs moving abroad.

“With the Brexit on offer looking so different to the one that was promised, the public must be given the final say on Brexit – that’s why huge crowds will march through London on March 23rd demanding a People’s Vote. It’s time to put it to the people.”

/ends

 

Notes to editors

The research conducted by the People’s Vote campaign is as follows:

 

  1. Cost to GDP

Range: £40 billion to £47 billion per year

The most important way Brexit has affected the economy so far is through lower GDP. Uncertainty surrounding Britain’s EU departure has led to lower spending and a smaller economy than would have been the case otherwise. This means that even though Brexit has not yet happened, it is still costing Britain billions of pounds a year in lost output, meaning lower incomes for the British people.

 

Evidence:

The Centre for European reform has calculated that, to September 2018, the Brexit process has cost the UK 2.3% of GDP growth (link). This amounts to about £47 billion a year in lost activity[1]

Born et al reached a similar conclusion, saying that Brexit had cost the UK around 2% of GDP by the second quarter of 2018 (link). This amounts to about £41 billion a year in lost activity[2].

A UBS report published in September 2018 said GDP is 2.1% lower than it would have been had we not left the European Union (link).

Mark Carney said in May that the cost of Brexit was running at 2% of GDP. He said this was the equivalent of £900 per person per year (link).

In February 2019, Gertjan Vlieghe, a member of the Bank of England’s Monetary Policy Committee also estimated the loss to GDP at 2%. He said “That 2% of GDP is not trivial, that’s £40bn or if you prefer it in bus units, it’s £800m a week” (link).

 

  • Cost to the Treasury

Range: £14 billion to £17 billion per year

Lower GDP inevitably leads to lower tax receipts for the treasury, meaning vital public services are starved of funds, or borrowing has to increase. This decrease in revenue has meant that austerity is being wound down much slower than would have been possible had we decided to remain in the European Union.

 

Evidence:

The Centre for European Reform has calculated that the effect of lower GDP on public finances was running at £17 billion a year by September 2018, or £320 million a week (link).

The tax to GDP ratio in the UK is thought to be 34.6% (link), meaning that a range of £40 billion to £47 billion in lost GDP approximates to between £14 billion and £16 billion a year in lost tax revenues.

 

  1. Additional Inflation

Range: 1.5% to 1.7%

Brexit has, mostly through the fall in the value of the pound, increased prices by a significant amount since the referendum. This means people across the country are having to spend more money to maintain their standard of living.

 

Evidence:

A study by the LSE called “The Brexit Vote, Inflation and UK Living Standards” found that the Brexit vote had caused additional price inflation of 1.7%. This means Brexit has cost the average household £404 a year in higher prices (link).

Dy Dennis Novy, who worked on the LSE study, reaffirmed the 1.7% figure in CAGE’s report titled, “Which way now, economic policy after a decade of upheaval” (link). Thomas Samson also reaffirmed these conclusions in February 2019 (link).

A UBS report published in September 2018 said that prices were 1.5% higher than they would have been had we not voted to leave the European Union (link).

 

  1. Business Investment

Estimate: Business Investment has been £35 billion lower in total since 2016 than it would have been if we had voted to remain

 

Evidence:

Business investment was almost £8 billion lower in the last quarter of 2018 than was forecast before the referendum. The total difference since June 2016 is now around £35 billion. Business investment fell by 1.4% in the last quarter of 2018, and, year on year, business investment was 0.9% lower than in 2017[3]. It is lower than in was in the last quarter before the referendum. The OBR had forecast before the referendum that investment would grow by 5.8% last year.

Investment in car manufacturing has dropped off steeply since the referendum result. Between 2017 and 2018 investment in the UK car industry fell by 46.5% from £1.1 billion to £563 million (link). Car manufacturers such as Honda have said that they will no longer produce in the UK.

A report in February 2019 by the Centre for Economic Performance at the London School of Economics showed that due to Brexit, the UK has lost out on £3.5bn worth of investment from the EU27 and UK investment in the EU27 has increased by 8.3bn over the same period (link).

 

Footnotes

Based on ONS estimate of 2018 GDP being £2,033,623 million (link), giving a yearly loss of £46773.33 million

Based on ONS estimate of 2018 GDP being £2,033,623 million (link), giving a yearly loss of £46773.33 million

ONS figures are used for the actual levels of business investment. For Q1 2015 to Q3 2018, we have used the “Business investment in the UK Statistical bulletins” (link). Since this is not yet available for Q4 2018, for this quarter we used the fact that the ONS state in their most recent “GDP first quarterly estimate” that business investment fell 1.4% compared to Q3 2018 (link)

Pre-Brexit forecasts are based on the OBR’s “Economic and fiscal outlook March 2016” (link). Since this gives only yearly growth estimates, we have converted these to quarterly using compound growth.

Table of estimates and actual outcomes for business investments:

Date

Brexit Reality (£ million)

Pre-Brexit Forecast (£ million)

2015 Q1

47195

47195

2015 Q2

47152

47152

2015 Q3

45985

45985

2015 Q4

47023

47023

2016 Q1

46221

47326

2016 Q2

46622

47630

2016 Q3

47330

47937

2016 Q4

46858

48246

2017 Q1

46762

48965

2017 Q2

47365

49695

2017 Q3

47779

50436

2017 Q4

47971

51189

2018 Q1

47634

51915

2018 Q2

47453

52652

2018 Q3

46913

53400

2018 Q4

46256

54158

 

[1] Based on ONS estimate of 2018 GDP being £2,033,623 million (link), giving a yearly loss of £46773.33 million

[2] Based on ONS estimate of 2018 GDP being £2,033,623 million (link), giving a yearly loss of £46773.33 million

[3] ONS figures are used for the actual levels of business investment. For Q1 2015 to Q3 2018, we have used the “Business investment in the UK Statistical bulletins” (link). Since this is not yet available for Q4 2018, for this quarter we used the fact that the ONS state in their most recent “GDP first quarterly estimate” that business investment fell 1.4% compared to Q3 2018 (link)

[3] Pre-Brexit forecasts are based on the OBR’s “Economic and fiscal outlook March 2016” (link). Since this gives only yearly growth estimates, we have converted these to quarterly using compound growth.

Table of estimates and actual outcomes for business investments:

Date

Brexit Reality (£ million)

Pre-Brexit Forecast (£ million)

2015 Q1

47195

47195

2015 Q2

47152

47152

2015 Q3

45985

45985

2015 Q4

47023

47023

2016 Q1

46221

47326

2016 Q2

46622

47630

2016 Q3

47330

47937

2016 Q4

46858

48246

2017 Q1

46762

48965

2017 Q2

47365

49695

2017 Q3

47779

50436

2017 Q4

47971

51189

2018 Q1

47634

51915

2018 Q2

47453

52652

2018 Q3

46913

53400

2018 Q4

46256

54158