Monday, 4 July 2022 – 05:28

The UK worse off under any Brexit deal – according to the Treasury

The Government has been dealt two blows today over Brexit, and the impact that the various outcomes will have on the economy. 

The first blow was dealt by the government itself, in a cross-committee analysis of outcomes compiled by the Treasury. Its analysis shows that the UK will be financially worse off under any Brexit deal. In particular, a deal similar to the one negotiated by the Prime Minister, looks set to cost Britain £100bn-a-year. Clearly this questions the likelihood of the £350m-per-week NHS funding, and highlights the real economic threat posed by life outside the EU. The Chancellor, Philip Hammond, seemed to confirm these reports, after speaking on Radio 4 this morning in which he said that the UK will be worse off outside the bloc. Under the analysis, the UK economy could shrink by up to 3.9% over the next 15 years if it leaves under a deal similar to the one set to be voted on on December 11. Exiting the bloc with a Canada-style free trade agreement, the sort of deal proposed by senior Brexiters, GDP could be cut by 6.7%, and crashing out under a ‘no deal’ – the most extreme outcome would mean a 9.3% hit. A no-deal scenario could see borrowing climb by an extra £95.1bn, while under a Canada-style deal the figure would be £72bn. Ultimately, this cross-government assessment paints a bleak picture of Britain’s long-term prospects outside the EU, and makes the Prime Minister’s sell of her deal, even harder. 

The second blow came from the Bank of England, which set out its ‘no deal’ scenario. Building on the government’s own analysis, the UK economy could shrink by 8% in the immediate aftermath. This would send ripples throughout the economy, with house prices falling by almost a third, and the pound falling by a quarter. Unemployment would also spiked, potentially hitting 7.5%. This Bank’s scenario is not what it expects to happen, but represents a worst-case scenario, based on a so called “disorderly Brexit”. This would involve the UK reverting to World Trade Organization rules, no new trade deals implemented by 2022, and the UK losing all access to existing trade agreements between the EU and third countries. This would also lead to severe disruption at borders because of customs check, and shrink the population with immigration falling by 100,000 a year. 

For the Prime Minister, this is not all bad news. Whilst the Treasury’s analysis does criticise her plan, or one similar at least, the Bank of England’s warning may be beneficial. Whilst Brexiteers like Jacob Rees-Mogg have been critical, accusing both of the above of scaremongering, it is hoped by the government that the fears of a ‘no deal’ may force rebellious MPs to back the PMs plan. Essentially, far from taking back control, the government is hoping that their deal, even with its less preferable elements will be passed to avoid an economic catastrophe. 

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