Analysis produced by range of government departments suggests GDP could fall by 10.7%
The UK would be significantly worse off under all possible Brexit scenarios in 15 years’ time, according to a benchmark economic analysis produced by a range of government departments including the Treasury.
The keenly anticipated document concludes that GDP would have been 0.6% lower under the Chequers plan in 2035-36 – although that has been ditched after a revolt from the Conservative right – and 7.7% lower in the event of the UK crashing out with no deal, when compared with the UK remaining in the European Union.
Officials modelled every scenario across a range, comparing them in nominal terms. Under the worst-case, no-deal scenario, GDP would be 10.7% lower than if the UK had stayed in the EU in 15 years’ time, assuming there is no longer any net migration into the UK from the EU and European Economic Area (EEA) after Brexit.
Before publication of the analysis, the chancellor, Philip Hammond, said the UK would be worse off in the future after Brexit, saying: “If you look at this purely from an economic point of view, yes there will be a cost to leaving the European Union because there will be impediments to our trade.”
Remarkably, none of the scenarios modelled quite approximate to May’s deal agreed over the weekend. But the analysts produced a scenario based on Chequers with 50% higher non-tariff barriers to help with comparison. That held that GDP would be 2.1% lower in 2035-36.
The deal negotiated by May will probably end up somewhere between the two Chequers-based scenarios outlined, meaning the UK would be between 0.6% and 2.1% worse off in nominal GDP terms in 2035-36 than if it remained in the EU.
The shadow chancellor, John McDonnell, who was granted an urgent question in the Commons following the publication of the analysis, said it was ludicrous that officials had produced an economic analysis of plans based on the Chequers proposals, which the government had abandoned.
“The one thing this document shows, the deal on the table is worse than the abandoned Chequers deal,” McDonnell told MPs.
The chancellor had previously told the BBC that May’s deal would “absolutely minimise those costs” stemming from a looser trading arrangement with the EU. “The economy will be slightly smaller in the prime minister’s preferred version,” he said.
The official analysis also concluded that:
• Under a Norway EEA scenario, favoured by some Tory remainers, GDP would be 1.4% lower in 15 years’ time, worse than the additional scenario produced after May’s deal was signed over the weekend.
• Under a Canada-style deal, supported by Boris Johnson and David Davis, the UK would be 4.9% worse off than remaining in the EU, the study concludes.
All scenarios were based on an assumption that EU migration rules remain roughly unchanged. If migration rules are dramatically tightened up, to the point where there is zero net migration from the EU and the EEA, GDP would be 1.8% lower in 2035-36.
Public sector net borrowing would be up to £141bn higher in 15 years in the worst-case no-deal scenario, the official analysis concluded, where there was no net migration from the EU.
In the central case, borrowing would be £119bn higher in a no-deal scenario, £96bn higher in a Canada-style scenario, and £27bn higher in the Chequers scenario. Migration would remain at similar levels if the UK adopted a Norway model, but allowing for migration, borrowing would be £22bn higher.
Brexiters immediately accused the government of embarking on propaganda onslaught akin to “project fear”. Davis, the former Brexit secretary, said: “Treasury forecasts in the past have almost never been right and have more often been dramatically wrong.”
Predictions that the UK economy would contract by 2.1% in the 18 months after a leave vote were unfounded, Davis added. The economy actually grew by 2.8%.
Business organisations, however, hit back. Rain Newton-Smith, the chief economist of the CBI, which represents employers, said: “These forecasts paint a bleak picture over the long term of a no-deal Brexit or a Canada-style deal. It surely puts to bed some of the more far-fetched ideas that a hard-landing Brexit will not seriously hurt the economy.”
A regional breakdown also showed that in a no-deal scenario, the north-east of England would be worst affected, followed by the West Midlands, the north-west of England and Northern Ireland. London would easily be the least affected.
In the best-case Chequers scenario, London and the south-east would be the worst affected, although the overall GDP impact would be much lower. Scotland, Wales and Northern Ireland would be the least affected.
The headline analysis made an assumption that the UK would succeed in signing free trade deals with the US and a range of other big non-EU economies after Brexit, such as China, India and Australia.
The comparative figures published in the analysis do not take account of any economic growth; the scenarios selected were measured against the UK’s existing membership of the EU.