Leaving the EU will dramatically shrink the UK economy by £100bn over the next five years and could mean the loss of nearly 1m jobs, a new report from the Confederation of Business Industry (CBI) has found.
The analysis carried out by accounting firm PwC for the CBI estimated that household incomes would take a significant hit – in the worst case Brexit scenario the average household would lose £3,700 by 2020, while even in the rosiest scenario, households would take £2,100 hit.
The CBI analysis looked at two different situations if the UK votes in June to leave the EU.
One assumes that a trade deal between the EU and the UK were quickly negotiated and the other scenario assumes that a trade deal did not go through. This second less favourable scenario would mean that the UK can only trade under World Trade Organisation rules.
The CBI highlighted that it is likely that the UK will fail to swiftly secure a trade deal with the EU if it leaves.
That’s because trade deals often take many years to fully negotiate – for example, the first set of the 17 treaties and 120 bilateral agreements that govern Switzerland’s relationship with the EU took seven years to secure; the second set took 16 years.
“Securing a new, formal arrangement would require the agreement of 27 EU member states, followed by ratification by each of them,” explained CBI director of economics Rain Newton. “Given all this – the Cabinet Office estimates we may not have a new relationship for 10 to 15 years.”
A separate analysis conducted by the Centre for Economic Performance (CEP) estimated even greater consequences if the UK exits the EU. In its worst-case scenario, the CEP found that the average household could lose up to £6,400 as a result of lower trade and productivity. This is a loss comparable to the decline in UK GDP following the global financial crisis.
“Our work leaves little doubt that there is a serious cost for real wages and pensions from leaving the EU,” said CEP director Professor John Van Reenen. “Even ignoring any chilling effect on foreign investment and productivity from Brexit, the income losses from lower trade are clear. Regulatory overhauls are unlikely to offset these losses to any great extent.”
CBI director general Carolyn Fairbairn warned that the savings from reduced EU budget contributions and regulation would be greatly outweighed by the negative impact on trade and investment.
“Even in the best case this would cause a serious shock to the UK economy,” she said.
Both reports on the possible economic consequences of the UK exiting the EU come in the wake of Unite’s announcement last week that the union will campaign to remain in the EU.
The union’s 63-strong executive council, drawn from workplaces across the UK, agreed that while the EU needs urgent reform to restore the project to its original mission of solidarity between nations, continuing membership is still the best hope for the jobs and rights of Britain’s workers.
“Our communities clearly benefit from the investment and trade links that come with being part of the EU,” argued Unite general secretary Len McCluskey. “And our working people are in increasing need of the employment rights that flow from membership. Rest assured that outside of the EU, left at the mercy of a Conservative government, these protections will be swept away. That probability is reason alone to campaign to remain in the EU.”