The economic fallout from Brexit could be “limited” – but only if the UK continues to welcome in large numbers of migrants from the European Union every year, according to an analysis by a respected consultancy.
In a major economic modelling exercise involving no less than nine different post-exit policy scenarios, Oxford Economics said that in its best -case scenario the UK’s GDP would be just 0.1 per cent lower by 2030 and income per head of population could actually rise by £40. But that benign outcome would only be achieved if the Government did not cut European Union net migration substantially – despite the Leave campaign touting a reduction in immigration as a major reason to quit the EU.
It would also be dependent on ministers signing a trade deal with the bloc that severely limits the UK’s ability to make its own bilateral trade deals with other non-European countries. Britain would also have to continue to make contributions to the EU’s budget. “The long-term impact of Brexit need not be severe. But benign scenarios involve retaining aspects of EU membership: continued high immigration, restrictions on our ability to make trade deals with non-EU countries and continuing to pay money to Brussels,” said Henry Worthington of Oxford Economics.
The findings have a rosier best-case economic scenario from Brexit than those laid out by the accountants PwC on behalf of the CBI, which warned of a minimum 1.2 per cent shock to GDP by 2030. But the Oxford Economic results also back up warnings from Remain campaigners that Britain might well be forced to re-create much of the existing institutional relationship with the EU to minimise impact.
The consultancy argues that any Brexit scenario that involves a major clampdown on immigration would open up a black hole in the public finances that would force substantial tax rises or spending cuts equivalent to between £22bn and £31bn in today’s money. It points out that this would more the offset the net gain from ceasing the UK’s £8.5bn net contributions to the EU budget.
“Despite the short-term benefit to the UK Budget of no longer contributing to Brussels, populist policy choices would damage tax revenues by much more. The result would be even more austerity” said Mr Worthington.
The Oxford report, which was overseen by two independent Oxford University economists and was not commissioned by any outside group, also suggests the UK would be the weaker party in the event of post-Brexit negotiations with the bloc since the worst-case economic cost to Britain would dwarf that of the EU.
Following Brexit it says the EU economy would be just 0.2 per cent smaller in 2030 in the worst-case. That compares with a worst case for the UK of a 3.9 per cent GDP shortfall.