HM Treasury analysis: the long-term economic impact of EU membership and the alternatives

18 April 2016

HM Treasury analysis on the EU referendum shows that a vote to leave would mean Britain would be permanently poorer.

1. Britain will be worse off by £4,300 a year per household if Britain votes to leave European Union, new analysis published by HM Treasury shows

HM Treasury’s analysis has considered the three existing alternatives:

The central estimates – defined as the middle point between both ends of the range – for the annual loss of GDP per household under the three alternatives after 15 years are:

2. The analysis also finds that the negative impact on the economy (GDP) would result in a total reduction in tax receipts of £36 billion, equivalent to around an 8p increase in the basic rate of income tax

The analysis also finds that the negative impact on the economy would result in substantially weaker tax receipts.

This would significantly outweigh any potential gain if we were to make lower financial contribution to the EU - which are a little over 1p for every £1 of tax paid once the UK’s rebates and receipts are taken into account.

HM Treasury estimates that the total reduction in tax receipts under each scenario would be as follows:

A reduction of £36 billion in tax receipts would result in higher government borrowing, large tax rises or major cuts in public spending.

For example, it would be equivalent to more than a third of the NHS England budget, or to raising the basic rate of income tax by around 8p from 20p to 28p.

3. The UK is estimated to be between 3.4% and 4.3% of GDP (economic output) better off inside the EU than with membership of the European Economic Area like Norway

Leaving the EU to join the European Economic Area would maintain considerable (but not complete) access to the single market, but it would mean having to introduce a customs border with the EU.

It would also mean accepting EU regulations, the free movement of people, and financial contributions to the EU.

The analysis concludes it would mean having to accept EU rules without getting any say over them. And that in the long term, reduced openness in this way hits productivity, which then feeds through into lower GDP and living standards.

After 15 years, the UK is estimated to be between 3.4% and 4.3% of GDPbetter off inside the EU than the European Economic Area.

In 2015 terms, the impact on the economy of leaving the EU for the European Economic Area would equate to a long‑term loss of £2,600 a year for each household in the UK.

4. The UK is estimated to be between 4.6% and 7.8% of GDP (economic output) better off inside the EU than with a negotiated bilateral agreement like Canada, Turkey or Switzerland

A negotiated bilateral agreement provides less access to the single market than the European Economic Area alternative, in particular in relation to services, which are of critical importance to the UK – 80% of the UK’s workforce are employed in the services sector, and the UK has the largest share of services exports of any major advanced economy.

The bilateral agreements that involve most access have the greatest obligations: no other country has been able to agree significant access to the single market without having to accept EU regulations, the free movement of people and financial contributions to the EU.

After 15 years, the UK is estimated to be between 4.6% and 7.8% of GDP(economic output) better off inside the EU than with a negotiated bilateral agreement.

In 2015 terms, leaving the EU for a negotiated bilateral agreement would imply a long-term loss of GDP of £4,300 a year for each household in the UK.

5. The UK is estimated to be between 5.4% and 9.5% of economic output (GDP) better off inside the EU than adopting the rules of the World Trade Organisation like Russia or Brazil

World Trade Organisation membership would amount to a significant closing of the UK’s access to global markets and would likely see the introduction of more trade barriers, including tariffs.

Relying solely on the rules of the World Trade Organisation would result in a significant reduction in the openness of the UK economy to the outside world. It would be the alternative with the most negative long-term impact.

After 15 years, the UK is estimated to be between 5.4% and 9.5% of economic output (GDP) better off inside the EU than adopting the rules of the World Trade Organisation instead.

In 2015 terms, leaving the EU and relying on these rules would mean a long-term loss of GDP of £5,200 a year for each household in the UK.

In terms of the long-term economic impact, the analysis shows that leaving the EU and relying on World Trade Organisation rules would be the least attractive of the three alternatives.

Full key facts

Full analysis

Related article on The Times: Osborne: Brexit will cost us £4,300 per household (subscription required)


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