Households 'worse off' after Brexit
If the UK leaves the European Union, British households could be on average as much as £1,700 a year worse off, a think tank has said.
In the longer term, the average cost to households could be up to £6,400, according to the Centre for Economic Performance.
It says a decline in trade would cost the economy “far more” than would be gained from lower EU contributions.
But Vote Leave described the claims as “ridiculous” and lacking “credibility”.
The Centre for Economic Performance (CEP) is a think tank based at the London School of Economics.
In reaching its conclusions, the CEP starts from the standpoint that about half of the UK’s trade is with the EU and that as a member of the EU the UK benefits from there being fewer barriers to trade.
It says post-Brexit the UK would do less trade with the EU because there would be higher tariffs on goods. But also there would be other non-tariff barriers to trade, such as British exporters to the EU having to prove their goods were made in the UK.
Also in the longer term the UK would get less benefit from future market integration within the EU.
Best case scenario
According to the researchers, in the best case scenario the UK negotiates a deal with the EU similar to Norway’s.
Norway is a member of the European Economic Area and has a free trade agreement with the EU, so there are no tariffs on trade between the two.
However, there are some non-tariff barriers to trade. After deducting the savings that would be made by the UK no longer having to make contributions to the EU budget, the researchers say there would be a fall in UK income of 1.3% – which equates to £850 a year per household.
Analysis: Anthony Reuben, BBC Reality Check
The problem is that any such predictions involve making big assumptions about what would happen in the event of the UK leaving the EU.
The conclusions are extremely sensitive to such assumptions. For example, the losses double if you move from the “optimistic” to “pessimistic” conclusions about what sort of trade deal a post-Brexit UK would reach with the EU.
In the worst case – the researchers assume that the UK cannot negotiate a new trade agreement with the EU and all trade between the UK and EU is governed by World Trade Organization rules. This they say would mean bigger increases in trade costs.
It would mean a fall in UK income of 2.6% – or £1,700 per household, according to the CEP.
“In the optimistic scenario where incomes shrink by only 1.3% we would – like Norway and Switzerland – have to pay into the EU budget and accept EU regulations that we had no say in deciding,” says Thomas Sampson, one of the report’s authors.
“What’s more there would still be free migration of labour.
“Given the politics, this makes the pessimistic outcome more likely,” he adds.
Longer term the report says the fall in trade experienced by the UK outside the EU would lower productivity. That would translate into a fall in GDP of between 6.3%, or £4,200 per household, and 9.5% or £6,400 per household.
However, the CEP’s findings have been strenuously rebutted by Leave campaigners.
“These ridiculous claims lack credibility as they come from the same economic sages who said we would be better off scrapping the pound,” said the chief executive of Vote Leave, Matthew Elliott.
Among the points Vote Leave takes issue with is the report’s assumption that trade would be reduced as a result of leaving the EU. This it says is wrong.
“It’s principal claims are based on leaving the EU ‘reducing trade’. Even pro-EU campaigners admit that the UK would have little difficulty striking a free trade agreement with the EU following withdrawal,” it goes on.
It says the assumptions about non-tariff barriers to trade in the report were “extremely pessimistic”.
It also attacks the CEP for having received funding form the European Commission. The CEP says less than a 10th of its income comes from that source.
Earlier on Friday, the co-founder of stockbroker Hargreaves Lansdown told the BBC the “unknown” of leaving the EU could help stimulate Britain”.
Peter Hargreaves, who backs the UK’s withdrawal from the union, told BBC Radio 4’s Today programme that a fresh start could help Britain innovate.
Demand for UK fashion and cars, as well as the attractiveness of the UK as a market for the EU, would ensure good trade deals, he said.