LONDON — Brexit has slashed Britain’s public finances by £440 million a week, according to new research, which found the UK economy is already 2.1% weaker than it would have been if the country voted to stay in the European Union.
A report from the Centre for European Reform (CER) found that — thanks to lower tax revenues — the knock-on hit of the vote to leave the EU to public finances has been £23 billion per year.
The findings comprehensively refute Prime Minister Theresa May’s recent claim that she would boost NHS funding significantly with a “Brexit dividend” when Britain stops paying into the EU’s budget.
“The government’s ‘Brexit dividend’ is a myth”
“We know that the government’s ‘Brexit dividend’ is a myth,” said John Springford, deputy director of the CER and the report’s author.
“The vote is costing the Treasury £440 million a week, far more than the UK ever contributed to the EU budget. Two years on from the referendum, we now know that the Brexit vote has seriously damaged the economy.”
The Office for Budget Responsibility — an independent statistics watchdog — has also predicted that Brexit will raise the UK’s deficit and debt, which in turn requires tax raises, spending cuts, or both.
The OBR says that is because there is strong evidence the UK will be more closed to trade, investment, and migration once it has left the EU, consequently lowering tax revenues.
How different would a Remain vote have been?
The report is based on a statistical model which compared Britain’s current economic state to a hypothetical scenario in which the country voted to keep its EU membership in June 2016.
The ‘Remain’ model was formed by finding which OECD countries’ GDP, consumption, and investment data best mirrored the performance of the UK economy in the 20 years running up to the referendum. Those countries were Canada, Japan, Hungary, and the US, as well as several other mostly European countries.
The 2.1% estimate is a result of lower output and falling investment as businesses grapple with deep uncertainty surrounding Britain’s EU exit. That, in turn, means that tax receipts are lower and the government is therefore forced to borrow more to fund public services and pay down its deficit.
The government’s own analysis of the cost of various options, which was leaked in January, estimated that 1% of GDP growth equated to an extra £11 billion in borrowing. Given that the estimated cost so far was 2.1%, that implies an extra £23 billion in borrowing every year.
In summary, although Britain is yet to leave the EU, Brexit is already costing the Treasury £440 million a week.
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