Osborne Warns of Decades of Economic Pain If U.K. Quits EUby , , and
Brexit would knock 6% off U.K. GDP by 2030, Treasury argues
First campaign week sees Obama and Macron tell U.K. to stay
Chancellor of the Exchequer George Osborne outlined the bleakest scenario yet if the U.K. votes to leave the European Union, saying that Britain’s economy would suffer permanent damage hitting the public in the pocket.
Quitting the 28-nation EU would leave the U.K.’s economic output between 3.8 percent and 7.5 percent lower after 15 years, costing as much as 2,100 pounds ($3,000) per person, according to a Treasury analysis released Monday, as the government turned its biggest guns on the arguments advanced by those backing a so-called Brexit.
“Britain would be permanently poorer if we left the EU,” Osborne said in a speech near Bristol, western England, that opened the first full week of formal campaigning ahead of the June 23 referendum. “Under any alternative we’d trade less, we’d do less business, there would be less investment and the price would be paid by British families.”
Osborne’s intervention came the day after French Economy Minister Emmanuel Macron told Britain that outside the EU it would be “completely killed” in trade talks with countries such as China, and less than a week before U.S. President Barack Obama is due to visit the U.K. and offer his own warning against leaving.
The Treasury report examines three alternative models for Britain’s trading arrangements post-Brexit: a “Norway model,” whereby the U.K. is part of the European Economic Area without being an EU member; a “Canada model,” under which the U.K. would negotiate a bilateral trade deal with the bloc; and a “WTO model,” whereby the U.K. would access EU markets under World Trade Organization terms.
In all three cases, it argues that leaving the EU would cause permanent rather than temporary damage to the economy due to lower trade and investment. Brexit would cut government income at the cost of public spending, such as on the state-run National Health Service and defense, Osborne said.
A Canadian-style agreement, as advocated by some campaigners to leave, would shrink gross domestic product by more than 6 percent, making each household 4,300 pounds a year poorer by 2030, Osborne said. “The most likely bill” for Britain’s public services would be 36 billion pounds per year, or the equivalent of an increase of 8 percentage points on the basic 20 percent rate of income tax, he said.
‘Heavy Economic Price’
“British families will pay a heavy economic price if we leave the EU,” Osborne said in his speech. “Higher taxes and a smaller economy are not a price worth paying.”
Under a Canada-style accord, officials argued, Britain would lose passporting rights, which allow financial-services firms to sell into other EU member states without having to set up a branch there. That may lead to finance jobs leaving the U.K., they said.
Staying in the EU and driving reforms to the bloc to deepen the single market and complete trade deals currently under negotiation “offers a huge prize for Britain, it could add up to 4 percent to our GDP over the coming 15 years,” Osborne said
John Redwood, a senior Conservative member of Parliament who has long argued Britain should leave the EU, rejected the analysis.
“It’s an absurd claim from the Treasury,” he told the BBC. “I’m very sorry that they’ve degenerated to these levels. Germany has made it very clear they don’t want new barriers in the way of their very successful export business to Britain.”
Redwood offered his own vision of a post-Brexit Britain: “We’re going to be better off, we’re going to banish austerity, we’re going to spend our own money, we’re going to have the power to make our own laws, we’re going to control our own borders.”
Monday’s report is the latest in a series of economic warnings issued by Prime Minister David Cameron’s government as it seeks to convince voters to remain in the 28-nation bloc. It counters claims by campaigners for Brexit, including Justice Secretary Michael Gove and Mayor of London Boris Johnson, that leaving the EU would free up billions of pounds for the NHS and other public programs.
Bank of England officials said last week that the referendum may already be weighing on growth, warning it could increase uncertainty, weigh on demand as well as on the pound and even have far-reaching consequences for the labor market and the development of the economy.
The Bank of England’s comments “suggest that stay or leave, the Brexit referendum could be a lose-lose proposition: a vote to stay would lead to spikes in foreign-exchange rates, hurting exports and making the pursuit of inflation even more uncertain,” Jean-Michel Six, Standard & Poor’s chief economist for Europe, the Middle East and Africa, said in a statement on Monday. “On the other hand, an exit vote could cause a run on sterling and a spike in yields, hurting investors and consumer confidence.”
The chancellor’s speech came a day after his return from the International Monetary Fund’s spring meeting in Washington, at which concerns about the U.K.’s potential exit dominated discussions. Both the IMF and the World Bank said an exit would damage global growth. Osborne told reporters on Friday that concerns had been raised by China and Japan, as well as European states.
France’s Macron gave a blunt assessment on Sunday of the idea advanced by the “Leave” campaign that a vote to leave the EU would allow Britain to forge closer alliances with other trading partners, such as China.
“Today, you are strong because you are part of the EU,” he told BBC Television. “When you discuss your steel industry with China you are credible because you are part of the EU, not because you are just the U.K. You will be completely killed otherwise.”
Government warnings about the immediate domestic implications of an exit have also been plentiful. Osborne said Friday that an exit was likely to cause mortgage rates to rise. Speculation of political instability has also been raised, with former Tory Chancellor of the Exchequer Kenneth Clarke saying a vote to leave would make Cameron’s position as prime minister untenable.
“It’s the biggest decision for a generation, one that will have profound consequences for our economy, for living standards and for Britain’s role in the world,” Osborne said.