Leaving the European Union would cause a serious shock to the UK economy that could lead to 950,000 job losses and leave the average household £3,700 worse off by 2020, a report commissioned by the CBI business lobby group has warned.
In a stark warning, an analysis conducted by accountancy firm PricewaterhouseCoopers for the CBI said that Brexit could cost the UK economy £100bn – the equivalent of 5% of GDP – by 2020 and would cause long-lasting economic damage from which it would never recover.
Household incomes could be between £2,100 and £3,700 lower if Britain voted to leave the EU, while the UK’s unemployment rate, currently one of the lowest in the EU at 5.1%, would be between 2 and 3 percentage points higher, with 950,000 jobs potentially lost.
Carolyn Fairbairn, the CBI’s director general, said: “This analysis shows very clearly why leaving the European Union would be a real blow for living standards, jobs and growth. The savings from reduced EU budget contributions and regulation are 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.”
The CBI report angered Brexit campaigners, who believe the government is trying to scare voters into supporting Britain remaining in the EU.
Matthew Elliott, chief executive of Vote Leave, said: “Even in the CBI’s skewed choice of scenarios for exit, they are forced to admit that employment and the economy will continue to grow after we Vote Leave.
“The EU funded CBI are desperate to recreate the same scare stories they spread when they urged Britain to scrap the pound and join the euro. They were wrong then and they are wrong now. If we want to take back control and strike the kind of free-trade deal the CBI refuses to even consider, the only safe option is to Vote Leave.”
By taking a clear stance on Brexit, the CBI differs from the smaller business lobby group the British Chambers of Commerce, which is trying to be impartial. It recently suspended its director general, John Longworth, from his post after he suggested that Britain would be better off outside the EU.
The analysis came as former prime minister Sir John Major warned Britain faced a momentous decision in 23 June referendum
“This vote will be momentous. It will decide Britain’s place in the world for generations to come,” he said, before concluding: “It will be a fateful choice: Great Britain or Little Britain.”
Writing in the Telegraph, he set out a series of reasons for staying in the EU. “When we joined the EU we were the ‘sick man’ of Europe: today, as a result of our domestic reforms and membership of the European Single Market, we have the best performing economy in Europe,” Major said.
The CBI said PwC examined two different exit scenarios: one at the optimistic end of the range, and the other assuming difficult trade negotiations that eventually result in trade deals being concluded. It stressed that much more pessimistic scenarios could be envisaged.
Under both scenarios, UK living standards, GDP and employment would be “significantly reduced” if Britain left the EU, according to the report. Even if a free trade agreement with the EU was secured rapidly, the analysis suggests GDP could be 3% lower by 2020. Economic growth between 2017 and 2020 could be much lower than if Britain stayed in the EU, and possibly wiped out altogether in 2017 and 2018.
Fairbairn warned: “The economy would slowly recover over time, but never quite track back to where it would have been. Leaving the EU would mean a smaller economy in 2030.”
While other organisations such as US investment banks JP Morgan and Citi along with BlackRock, the world’s largest fund manager, have warned that a Brexit vote would damage Britain’s economy, the CBI’s analysis is the most detailed yet into the potential impact on the economy.
Last week a new report from the Centre for Economic Performance (CEP) at the London School of Economics also warned that UK trade and living standards would suffer. Average incomes would fall by £850 a household in the most optimistic post-Brexit scenario for UK trade, in which Britain adopts Norway’s model and remains part of the EU’s single market. But the CEP estimated that the impact from reduced trade and lower productivity could be as high as £6,400 per household, similar to the decline seen at the height of the financial crisis in 2008-09.
The government’s first official analysis into how Brexit would unfold, published last month, predicted a decade of uncertainty that would hit “financial markets, investment and the value of the pound”.
Fairbairn and Rain Newton-Smith, the CBI economics director, will set out the case for continued EU membership during an economics lecture to senior business leaders at the London Business School this morning. They will talk about the lack of attractive alternatives to full EU membership and the impact of leaving on trade, regulation and investment.
Fairbairn will say that if the UK leaves the EU without a free trade deal, 90% of British exports to the EU could face tariffs, with sectors such as textiles and transport equipment hit particularly hard.
In the CBI and PwC’s report, under the“FTA scenario”, the most optimistic Brexit outcome, the UK negotiates a free trade agreement with no tariffs on exports and imports between the UK and the EU by 2020. As it is no longer in the single market, it experiences a modest rise in non-trade barriers. It has existing free trade agreements with other countries currently held by the EU, and signs a new trade deal with the US.
The “WTO scenario” assumes the UK fails to secure a deal with the EU and trades under World Trade Organisation rules after leaving. Tariff and non-tariff barriers with the EU rise significantly. The UK loses its existing free trade agreements with other countries, but renegotiates them on the same terms by 2026 and signs a deal with the US in the same year.
The PwC research finds that under the WTO scenario investment in Britain could fall by a quarter by 2020, and would still be 10% lower by 2030, compared with the UK staying in the EU. With a free trade agreement, investment would fall by 16% by 2020.
The analysis comes a week after the CBI published a survey of its members, which employ a third of all private sector employees in Britain. It found that 80% believe being part of the EU is best for their business and 77% said it was better for the UK economy as whole.
The Britain Stronger In Europe campaign will today launch its biggest leaflet drop to date, delivering them to more than 20m households across the UK.
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