Treasury civil servants working for Chancellor Philip Hammond (right) have drawn up a ‘worst case’ scenario for other Cabinet ministers, including Foreign Secretary Boris Johnson (left at Tory conference last week)
Leaked papers have revealed a so-called ‘hard’ Brexit could cost the Treasury £66billion a year in taxes if the economy shrinks dramatically.
Falling out of the single market without a deal and relying on World Trade Organisation rules could hit the size of the economy by 9.5 per cent, mandarins have warned.
The bleak picture is painted in a draft memo to Cabinet ministers by Treasury civil servants, seen by The Times, uses the same data behind the grim warnings set out by George Osborne ahead of polling day in June.
A loss of £66billion in revenue is equivalent to almost 10 per cent of the £716billion revenue the Treasury expects to collect this year.
The figures are a ‘worst case’ scenario drawn up for ministers ahead of cabinet committee discussions on the Brexit plans. It will not be circulated without approval at No 10.
Speaking in the Commons yesterday about Brexit’s impact on the economy, Brexit Secretary David Davis declared: ‘There are no downsides – only a considerable upside.’
Prime Minister Theresa May clearly signalled she would pursue a hard Brexit at the Tory conference last week, making clear control over immigration was her top priority.
Full membership of the single market requires acceptance of EU free movement rules – something leading Brexit campaigners insist is unacceptable.
The Treasury scenario assumes Britain ends up leaving the EU without having struck a bilateral deal with the trading bloc.
Senior Brexit supporters told The Times the paper was ‘withdrawn from reality’ and ‘not very realistic’.
Speaking in the Commons yesterday (pictured) about Brexit’s impact on the economy, Brexit Secretary David Davis declared: ‘There are no downsides – only a considerable upside.’
EU chiefs, including council president Donald Tusk, has said they want Britain to have a smooth exit from the bloc but neither side has publicly sketched out its starting position for talks.
Mrs May is due to formally trigger the two year process for Brexit before the end of March, invoking the EU’s divorce proceedings in Article 50 of the treaties.
The Treasury ‘worst case’ scenario is one of three modelled by civil servants.
It said: ‘The Treasury estimates that UK GDP would be between 5.4 per cent and 9.5 per cent of GDP lower after 15 years if we left the EU with no successor arrangement, with a central estimate of 7.5 per cent.
‘In headline terms, a) trade would be around a fifth lower than it otherwise would have been; b) foreign direct investment would also be around a fifth lower and c) the level of productivity would be driven down by these reductions in trade and investment causing an overall reduction in the economy’s efficiency in the long run.’
Theresa May, pictured with her Dutch counterpart Mark Rutte yesterday, is due to formally start the Brexit process before the end of March
The paper highlights the possibility of a sharp drop in tax revenue, adding: ‘The net impact on public sector receipts — assuming no contributions to the EU and current receipts from the EU are replicated in full — would be a loss of between £38 billion and £66 billion per year after 15 years, driven by the smaller size of the economy.’
Mr Davis claimed there were also benefits to the fall in the value of the pound since Brexit. Sterling’s devaluation against the euro and the dollar has made UK exports more competitive.
In the most bullish comments yet by a Cabinet minister, Mr Davis warned Angela Merkel and Francois Hollande not to try to punish Britain for voting to quit the EU.