Lost trade will nullify Brexit dividend, UK government admits

Brexit is creating a constitutional crisis, says former Europe minister Denis MacShane. [Andy Rain/EPA/EFE]

A free trade agreement with the EU would still cost the UK 4.8% of its expected economic growth over the next 15 years, according to a confidential government ‘EU exit analysis’ published on Thursday (8 March).

That lost growth would result in an additional £55 billion of UK government borrowing by 2033, more than nullifying the so-called ‘Brexit dividend’ predicted by Leave campaigners during the 2016 referendum.

The paper was published by the cross-party Exiting the EU committee of MPs, against the wishes of ministers.

In an exchange of letters published by the committee on Thursday, Brexit Secretary David Davis urged the material to be kept secret, describing the documents as “negotiation sensitive and as such it would not be in the national or public interest to publish.”

Publication would “weaken our negotiating position and risks giving a highly misleading impression to citizens, businesses and investors,” Davis added.

However, sections of the document were already leaked to journalists in February.

DexEU “leaks like a sieve from top to bottom”, an official in Davis’s department told EURACTIV, referring to the Department for Exiting the EU.

Membership of the single market, an option which Theresa May’s team has already ruled out, would also result in lost growth worth 1.6% of GDP, while a ‘no deal’ Brexit where the UK would revert to trading with the EU-27 on the basis of World Trade Organisation rules would cost 7.7% of GDP, the government estimates. That would lead to increased government borrowing of £20 billion and £80 billion, respectively.

Between 40,000 and 90,000 EU migrants would be expected to leave the UK, it added.

The analysis also mentions the possible economic benefits from reduced regulation. The UK government is yet to produce its own impact assessment, but a range of think tanks have put the potential gains between zero and 2% of GDP.

“The analysis suggests that there will be an adverse effect on the economy of the UK and all its regions, and that the degree of impact will depend on the outcome achieved in the negotiations,” said Hilary Benn, the chairman of the Exiting the EU committee.

The paper does not attempt to estimate the short-term economic impact of exiting the EU, however.

It adds that a free trade agreement with the US would offer “a benefit to UK GDP of 0.2% in the long-term”. Meanwhile, additional pacts with countries in the trans-Pacific and south-east Asia regional blocs, China, India, Australia and New Zealand would “add a further 0.1% to 0.4% of GDP”.

UK ministers had initially hoped to be able to begin negotiations on third party trade deals ahead of the Brexit date in March 2019, an aim which has since been abandoned.

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