Brexit: UK economy to shrink and wages to fall under every scenario if it leaves EU, government analysis finds

Wages are expected to be 2.7 per cent lower – despite Brexiteer claims cutting EU migration would allow pay to go up

Theresa May's Brexit plan will deliver a 3.9 per cent hit to GDP and workers’ wages will be lower than if the UK stayed in the EU, according to the best estimate of government officials.

Every region of the country will be worse off in 15 years’ time, with London suffering the greatest damage, the analysis finds.

Real wages, after inflation, are expected to be 2.7 per cent lower – despite the claims of Brexiteers that cutting EU migration would allow pay to go up.

The analysis does not put a cash figure on the impact of a 3.9 per cent lower GDP, but other independent experts have suggested it equates to around £100bn – or £1,000 a head.

Such a sum would dwarf the gain from ending the UK's current contribution to EU budgets, which is only around £10bn a year.

The study assumes some “non-tariff barriers” in a future trade deal with the EU – in an apparent admission that the prime minister’s dream of “frictionless trade” is dead.

The 3.9 per cent figure also assumes new immigration controls result in no net flows of workers with the EU. With current flows, the reduction would be 2.1 per cent.

The long-term economic analysis also finds that borrowing could be pushed up by up to £26.6bn by 2035 under Ms May’s plans – and by as much as £119bn under a no-deal Brexit.

However, it acknowledges officials are working largely in the dark, after the prime minister admitted future trade arrangements are unknown – and after the EU threw out her Chequers plan.

David Lammy, a Labour supporter of the anti-Brexit Best for Britain group seized on the study, saying: “These figures show that the government's stated policy is to make our economy smaller and weaker.”

Arguing it strengthened the case for a Final Say referendum on the Brexit outcome, he added: “I cannot believe leave or remain voters both voted to make themselves and their families worse off.”

The 83-page document was drawn up by officials from departments including the Treasury, the department for exiting the EU, industry, environment, international trade and the home office.

It was released after Philip Hammond, the chancellor, admitted Britain would be poorer under Ms May’s plans, saying: “There will be a cost to leaving the European Union, because there will be impediments to our trade.”

The prime minister is heading to Scotland in her latest attempt to win support for a deal that appears to be heading to a crushing defeat in the Commons on 11 December.

Significantly, the analysis suggests the UK will be poorer under Ms May’s plans than under the ‘Norway-plus’ option – staying in the EU single market – being considered by some senior Tories.

A Norway-type deal would cut GDP by 1.4 per cent over 15 years – less than the 3.9 per cent hit from the current plan – and less than a Canada-type free trade agreement (6.7 per cent) or crashing out with no deal (9.3 per cent).

The modelling includes a heroic assumption that “successful” bilateral trade deals will be struck with 17 other countries, including the US, China and India.

However, it also calculates that even those deals would add only a puny 0.2 per cent to GDP – because the UK will be damaging ties with the much bigger market on its doorstep.