UK Brexit deal could slash GDP over next decade, warn economists
The UK’s Brexit deal could reduce GDP per capita by as much as 5.5 percent over the next 10 years, according to a report by a group of leading political and economic academics.
The report, ‘The economic consequences of the Brexit deal’, produced by the Centre for Economic Performance at the London School of Economics, Kings College London and the Institute for Fiscal Studies, considers the consequences of three situations: remaining in the EU, the current deal and no-deal Brexit.
The report finds the deal, recently approved by both the cabinet and EU leaders, could lead to a cut in UK GDP per capita by between 1.9 percent and 5.5 percent over the next 10 years.
The cost to public finances would be between 0.4 percent and 1.8 percent of GDP over the same period for the draft deal or even more for no-deal at 1 percent to 3.1 percent. ‘Such a large economic impact would also have major implications for the public finances. These would far outweigh any gains resulting from reduced EU contributions,’ the report states.
To estimate the implications for the government finances, the report assumes that a 1 percent fall in GDP per capita reduces government revenue by 0.4 percent of GDP.
One of the report authors, Jonathan Portes, senior fellow at The UK in a Changing Europe – an initiative to promote research into the UK-EU relationship, funded by the Economic and Social Research Council – and professor of economics and public policy at the King’s College School of Politics & Economics, says: ‘The Brexit deal would leave us in a customs union with the EU for the indefinite future, but it is a long way from frictionless trade.
‘The additional trade barriers, combined with reductions in both skilled and unskilled migration from the ending of free movement, would leave the UK significantly smaller than it would otherwise have been over the medium to long term. That in turn would mean higher taxes or public spending.’
Another of the report’s authors, Anand Menon, professor of European politics and foreign affairs at King’s College London and director of The UK in a Changing Europe, adds: ‘In all the sound and fury over the politics of Brexit, the economic implications have been somewhat lost from sight. Obviously, this kind of economic modeling needs to be treated with appropriate caution. But our estimates provide a clear indication of the broad scale of the impact of the deal negotiated by the prime minister.’
This comes after official Treasury figures released yesterday say the UK economy could be up to 3.9 percent smaller after 15 years under Prime Minister Theresa May’s Brexit deal, compared with staying in the EU.