Open Europe: What if...? The Consequences, challenges and opportunities facing Britain outside the EU

23 March 2015

According to Open Europe's comprehensive new report, UK GDP could be 2.2% lower in 2030 if Britain leaves the EU and fails to strike a deal with the EU or reverts into protectionism.

In a best case scenario, under which the UK manages to enter into liberal trade arrangements with the EU and the rest of the world, whilst pursuing large-scale deregulation at home, Britain could be better off by 1.6% of GDP in 2030. However, a far more realistic range is between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030, in scenarios where Britain mixes policy approaches.

What if there were a Brexit?

In this study, Open Europe primarily examines the economic impact of Britain leaving the EU. However, given that Brexit comes down to a finely balanced calculation, unquantifiable considerations such as lost sovereignty and democratic accountability may be what in the end determines whether Britain remains a member.

Open Europe’s study draws on detailed economic modelling, showing that the economic impact of Brexit is not as clear cut in either direction as most previous analyses have suggested. Instead it will depend on a number of tough decisions in the UK and Europe. This includes whether the EU itself will embrace reform and British politicians and voters are willing to accept ambitious deregulation and new levels of competition through expansion of free trade.

The numbers

Based on economic modelling of the trade impacts of Brexit and analysis of the most significant pieces of EU regulation, if Britain left the EU on 1 January 2018, we estimate that in 2030:

The tough choices facing Britain outside

In none of our scenarios would the cost of leaving the single market and the EU customs union be off-set by merely striking a new trade deal with the EU. Britain will only prosper outside the EU if it is prepared to use its new found freedom to undertake active steps towards trade liberalisation and deregulation. It faces a series of difficult choices:

The choices for Europe

The economic advantages and disadvantages of Brexit will depend to a large extent on the future relative economic dynamism of the EU. If it manages to overcome its current economic problems, and liberalises internal and external trade, then the cost of Brexit relative to remaining within the EU will be higher.

The process of leaving

Article 50 – the only established legal way to leave the EU – is a major liability. Once triggered, there is no turning back, it excludes the UK from key decisions as well as the final vote and it leaves the EU in charge of the timetable during two years of negotiations, following which the UK could be presented with a ‘take it or leave it’ deal. Our results show that leaving without a preferential trading agreement would dent UK GDP significantly.

Full report and press release

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