Analysis: UK Treasury Work Sharpens Attack On Brexit
-Chancellor Osborne: No Credible Organisation Think Brexit Good For UK
LONDON (MNI) – UK Chancellor of the Exchequer George Osborne on Monday used Treasury research to attack the case for leaving the European Union, saying would go against economic consensus and require an 8 pence rise in income tax to compensate for lost income.
Osborne’s strategy is to highlight the fact that the vast majority of City and academic economists and the supra-national institutions agree that Brexit would come at an economic cost, with the Treasury work claiming the price would be high. The Leave campaign, without teams of economists to help it and no single view on its goals outside the EU, will struggle to come up with a coherent alternative analysis.
Marking the publication of the Treasury’s EU document, Osborne said that the cost of paying into EU membership policies was greatly outweighed by the vast investment that flowed into Great Britain as a result. Absent this investment and with no spending cuts the Treasury calculated that there would be a stg36 billion hole in public finances that would need to be financed through increased taxes.
“If that money wasn’t coming into the exchequer there would be a big hole in the public finances, a stg36 billion pound hole in the public finances, eight pence on the basic rate of income tax, if we leave the European Union. That means less money spent on public services and higher taxes,” Osborne said.
He cited support from various bodies, ranging from the International Monetary Fund, the World Bank and the Bank of England to Ernst & Young, Standard life and the London School of Economics.
“You cannot name a single ally of Britain, a single trading partner of Britain, a single credible international financial organisation which is saying it would be a good idea for Britain to leave the EU”, the Chancellor said.
He added, “You have had the Ernst & Young Item Club come out and say this is a reasonable analysis, you have had a big company like Standard Life (say it.) You are hearing not just from the Treasury but the International Monetary Fund, the Bank of England, the OECD. You are hearing from big companies …you are hearing from medium and small sized companies as well.”
City economists have come up with a wide range of estimates of the hit to growth of the UK leaving the EU, but they pretty much all agree the sign would be negative.
Morgan Stanley and JP Morgan projected a 1.0-2.5% contraction in GDP over the next 24 months alone, should the UK decide to leave the EU, with PWC estimating a 3.1-5% decline in GDP over the next five years.
The Treasury report analysed what it argued are the plausible alternatives to EU membership, concluding that none offer net benefits relative to the full access to the single market that the UK has today.
In his speech Osborne raised and dismissed a bilateral Canadian-style deal, advocated by some pro-Brexit campaigners as the most viable solution, highlighting that crucial differences in the economic make-up of the two countries would ultimately be detrimental for Great Britain.
The Treasury calculated that the Canadian system would result in a 6.2% contraction of the UK economy with all UK households stg4,300 poorer by 2030. A switch to membership of the European Economic Area, akin to Norway, was calculated to result in a 3.8% decline in GDP with households stg2,600 worse off.
Should the UK decide to fully detach itself from the EU and rely upon its membership with the World Trade Organisation (WTO), GDP would fall by 7.5% with households stg5,200 poorer over the next 15 years.
Monday’s Treasury document, on the long-term costs of Brexit, is going to be followed by one on the short-term costs, Osborne revealed. The Remain camp clearly has no shortage of economic ammunition.
It is a moot point how far economics will, however, influence the debate. The Leave camp’s initial response was to deride economic forecasting and its core appeal appears to be far more to anti-high levels of immigration and pro-sovereignty sentiment. For some in the Leave camp the economic cost is worth paying.
“Even Osborne’s bogus report predicts just 21p per person, per hour, to reclaim our independence and control migration,” a tweet from the official Leave campaign said.
Public opinion on the looming June 23 referendum has been close in recent months, and heightened media activity can be expected from both the ‘Remain’ and ‘Leave’ camps over the next two months.
The latest YouGov online poll, conducted on April 12, showed 39% of respondents in favour of staying within the EU with just as many people intent on leaving. A phone poll published overnight by ComRes, however, showed Remain retaining a 7 percentage point lead.