'Brexit' Would Cost Billions, U.K. Treasury Says
Calls for an independent United Kingdom have grown louder in recent weeks, as the European Union’s foundation has looked increasingly unsteady. Yet a controversial study released Monday by the U.K. government suggests a so-called Brexit ultimately would come at the expense of the country’s civilians.
In the report, the U.K.’s Treasury lays out a handful of most-likely scenarios in the event of such a move, none of which should look terribly appealing to its consumer base. The most likely outcome – in which the U.K. negotiates a bilateral free trade agreement with the remaining EU members similar to what’s currently on the books between the union and Canada – would shrink its economy by more than 6 percent by 2030, the analysis says. That equates to a loss of 4,300 pounds (or a little more than $6,100) on a per-household basis. The government also would lose roughly 36 billion pounds (more than $51 billion) in tax receipts over that window.
And in a worst-case scenario – in which the U.K. would not work out a specific trade agreement with the EU and instead rely on international tariffs based on membership in the World Trade Organization – the country’s economy would be 7.5 percent smaller by 2030 and its government would face a roughly $64 billion tax hole.
“The conclusions of this document are clear: none of the alternatives support trade and provide influence on the world stage in the same way as continued membership of a reformed EU; and all of them come with serious economic costs that would affect businesses, jobs, living standards and our public finances for decades to come,” George Osborne, chancellor of the Exchequer and a member of the U.K. Parliament, said in a statement accompanying the report.
The U.K. in June will vote on whether to remain within the 28-member European Union. The union’s annual economic growth has lagged behind the U.K.’s in each of the last five years, and growing concerns about Europe’s ongoing refugee crisis and the relative ease of travel between EU member nations have led some in the U.K. to question whether or not they’d be better off on their own.
YouGov polling as of last week showed that 40 percent of the British public supported remaining in the EU, while 39 percent wanted to break off from the union. Another polling average showed a 51 percent to 49 percent split in favor of remaining in the EU.
Monday’s report clearly suggests the U.K. would be better off staying put, as departure from the EU would “make it more difficult and expensive to trade with Europe and across the world, and lead to a reduction in foreign investment.”
And though the official economic estimates have been updated, the report’s contents are not dissimilar from another recent government report, which warned that a departure from the EU could lead to a “decade or more of uncertainty.”
But critics of the earlier report suggested it was unfairly one-sided and didn’t accurately reflect the economic and national security benefits the U.K. would realize by backing away from the EU. Those same grievances cropped up this time around as well.
“For a start, it is only looking at one issue, which is their thesis on what happens if we leave. A Treasury report that is a genuine choice for the people should look at the impact if we remain,” Andrea Leadsom, the U.K.’s energy minister, said in an interview with The Guardian, calling the report “unfair and biased.”
Leadsom, a Conservative Party member of Parliament, was careful to note that Osborne had done a “fantastic thing for this country” by guiding it out of financial crisis. But she said offering just a one-sided portrait of a Brexit’s repercussions was taking away the “free choice” of the citizens who would be voting on whether to stay in the EU.
An overarching government report profiling the benefits of breaking away from the EU (or the costs of remaining) has yet to surface. But the U.K. Treasury is not the only monetarily-focused entity concerned about the costs of a Brexit: Just last week, the International Monetary Fund revised down its global growth projections, citing the growing possibility of a Brexit as a key factor.
“In both the United States and Europe, the political discussion is turning increasingly inward,” the IMF said. “Adding to political strains in Europe is the tragedy of large-scale refugee inflows, especially from the Middle East.”
It’s believed that more than 1 million Syrian refugees migrated into Europe last year, straining domestic economies and igniting heated debates related to national security and border control. Those discussions have been prominent in the U.K., which already had the third-largest population of non-EU, foreign-born individuals living within its borders out of all the union’s countries in 2014, according to the Pew Research Center and Eurostat.
Indeed, recent Ipsos MORI polling found that 46 percent of the British public considered immigration to be a primary issue facing the country. That’s compared with only 34 percent who cited hospital and health care policy and 25 percent who were concerned about the economy.
Those in favor of a Brexit have argued that a departure from the EU would allow the U.K. to adopt more stringent border-control policies, but Monday’s Treasury report warned that, depending on the terms of the departure, a Brexit either wouldn’t have much of an impact on net migration or that it’s likely “any action by the U.K. government to reduce immigration would be met with reciprocal action by other EU countries, which would potentially reduce emigration from the U.K.”
The report said “there could also be pressure to pursue more liberal immigration policies … in order to promote new free trade deals.”
Regardless, the possibilities of a Brexit – and what such a move would mean for the future of the European Union – have sufficiently spooked the U.K.’s Treasury, the IMF and policy analysts around the world.
And while recent polling suggests June’s referendum vote may come down to the wire, if Monday’s report is any indication, a departure likely would not come without a cost.