Brexit: CBI study warns of ‘economic shock’

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The CBI has issued a blunt warning that an EU exit could cost the UK £100bn and nearly one million jobs.

The warning comes following the publication of a PwC study commissioned for the CBI which examined two different exit scenarios, and concluded that Britain’s GDP growth between 2017 and 2020 could be significantly reduced — possibly to as low as zero in 2017 or 2018.

CBI director general Carolyn Fairbairn also warned of ‘negative echoes’ for the UK economy lasting for many years after a potential departure.

‘Real blow’ for living standards

Speaking yesterday Fairbairn stated that an EU exit 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”, she continued. “Even in the best case this would cause a serious shock to the UK economy.”

‘Purely political’

However, pro leave campaigners dismissed the “purely political” study. UKIP economics spokesman Mark Reckless pointed out the report was based on outdated growth forecasts.

“From that basic flaw it is clear that PwC's many other assumptions therefore lack credibility”, said Reckless, “as does their report and its conclusions”.

Reckless went on to assert that the CBI and PwC were in receipt of “huge funding” from the EU, and claimed that the flow of unskilled labour from the EU “kept profits high” for members of the business lobby.

Exit scenarios

In its report for the CBI, PwC looked at two EU exit scenarios: one using optimistic assumptions and the other “recognising the likelihood of difficult trade negotiations”.

The first scenario examined what may happen if Britain signed a free trade agreement (FTA) with the EU within five years of voting to leave, while the second examined the likely outcomes of negotiations proving “more difficult and prolonged”, with the UK conducting business as a member of the World Trade Organisation (WTO).

Average annual GDP growth forecasts (source: PwC)
  2016-2020 2021-2025 2026-2030
Britain remains 2.3% 2.3% 2.3%
FTA scenario 1.5% 2.7% 2.3%
WTO scenario 0.9% 2.6% 2.4%

According to the report, if the UK remained in Europe it is forecast that GDP would grow 2.3% on average between 2021 and 2025 and between 2026 and 2030.

‘FTA scenario’

Under the FTA scenario, the UK negotiates a free trade agreement (FTA) with no tariffs on exports and imports between the UK and Europe by 2020. As it is no longer in the Single Market, the report claims the UK will experience a ‘modest rise’ in non-trade barriers. The UK is assumed to maintain existing free trade agreements with other countries currently held by the EU, and signs a new trade deal with the US.

 PwC predicts that under the FTA agreement the UK will see an economic expansion of 1.5% from 2016-2020, rising to 2.7% from 2021 to 2025.

‘WTO scenario’

The ‘WTO scenario’ is based on the UK failing to secure a deal with the EU and therefore trading 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 report predicts a significant slowdown in growth, with GDP growth shrinking to 0.9% from 2016-2020.

Commenting on the figures, Vote Leave chief executive Matthew Elliott said that average GDP growth in both scenarios between 2020 and 2030 would match - and in some cases overtake - GDP forecasts for the UK remaining in the EU.

Employment

PwC added that it expected employment to reach 32.2m by 2020, but this figure could fall by 550,000 in the FTA scenario and by 950,000 under the WTO agreement.

However, Vote Leave disputed the figures, stating that jobs would still be created under either scenario. According to their interpretation of the figures if Britain left and made a free trade deal employment would reach 34.1m by 2030, or hit 33.9 million via the WTO deal. Therefore even with the report’s ‘worst case’ scenario, the UK will gain over 3m jobs if the UK votes to leave.

Tom Herbert
Business Editor
AccountingWEB
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22nd Mar 2016 12:24

Paul Merton Economics

About 15 years ago on HIGNFY Paul Merton suggested that nobody ever worked out the figures for a headline grabbing article - they just said "Put £100m ..." and went down the pub.

Seems £100bn is the new £100m.

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By mabzden
22nd Mar 2016 13:47

Don't call us - we'll call you

Didn't the CBI lobby for us to join the Euro? I've just done a quick bit of research and French unemployment is at 10.3% (slightly below an 18 year high), while youth unemployment is 26%. Both are around double the UK levels.

So can the CBI update us on their views about whether we should join that fantastic currency?

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22nd Mar 2016 14:10

Vote Leave figures

At least you can read the report by PWC and judge for yourself whether the figures are in any way reliable.

Is there a similar source available for the Vote Leave version of the figures? They dispute the figures saying their calculations come up with different results. To properly judge both sides of the argument, we need to be able to examine those figures to the same level.

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22nd Mar 2016 14:29

@stepurhan

Thanks for your comment. Apologies, missed the source link off the article. Have now amended – here’s the link (scroll down to ‘The CBI’s hidden numbers’). It’s actually an interpretation of the CBI’s figures which they say show that even given the ‘worst case’ scenario the UK will gain over 3 million jobs if it votes to leave.

Cheers,

Tom

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22nd Mar 2016 15:41

The report relies on assumptions and guesswork. Other studies suggest minimal impact, and some suggest large benefits to the UK economy.  

Do they really think that trade barriers will be introduced?  Europe sells an awful lot to Britain, mainly cars 350,000 cars a year from Germany alone, plus lots of Citroens, Skodas, Fiats, etc. 

Do they really think that companies established here such as Toyota & Nissan will simply close their factories and relocate to France?  

I have never heard so much farcical scaremongering in my life.  

Leaving the EU will SAVE £billions currently paid to the EU, will have zero effect on imports and exports, and will free us from the ridiculous overbearing EU regulation. 

Organisations such as the CBI, and indeed the larger political parties, have only their own self interest at heart. They care nothing about the ordinary man in the street or indeed the country as a whole.  

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22nd Mar 2016 16:11

Links?

Lingfield wrote:
The report relies on assumptions and guesswork. Other studies suggest minimal impact, and some suggest large benefits to the UK economy.  

Do they really think that trade barriers will be introduced?  Europe sells an awful lot to Britain, mainly cars 350,000 cars a year from Germany alone, plus lots of Citroens, Skodas, Fiats, etc. 

Do they really think that companies established here such as Toyota & Nissan will simply close their factories and relocate to France?  

I have never heard so much farcical scaremongering in my life.  

Leaving the EU will SAVE £billions currently paid to the EU, will have zero effect on imports and exports, and will free us from the ridiculous overbearing EU regulation. 

Organisations such as the CBI, and indeed the larger political parties, have only their own self interest at heart. They care nothing about the ordinary man in the street or indeed the country as a whole.

Have you links to these "other studies" that show a different view. Without seeing them, how are we to know they are not based on assumptions and guesswork? If what you say is true, then your figures should be able to stand up to scrutiny. Like with this report, I'd like to be able to make that judgement for myself.

I would point out that any predictions of the future must at least partly be based on assumptions and guesswork. It is whether those assumptions are reasonable or that guesswork is based on sensible extrapolation from the present that matters.

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22nd Mar 2016 16:45

The truth is nobody really knows.

Whether or not the Brexit works depends on how well HMG run things in the wake of the departure.  External pressures from the continuing members will have to be dealt with firmly and it will need a great statesman to successfully pull it off.  It could be a great success story if it is properly handled by the right leader.  Unfortunately, that person isn't readily apparent at the moment.

I worry that DC will stand on the sidelines bleating "I told you so", if we exit and he can't make it work!

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22nd Mar 2016 18:02

.

Of course you could write this article as "we will get a wobble on exit, then it might get about back to where we are now. Or it might not"

Which is probably true. 

It is naive to suggest we WONT get a wobble for a few years post EU as we work out what the flipping heck we are supposed to do now, and the EU likewise works out how to treat us and businesses draw their horns in and reduce their risk during the period of change and uncertainty. 

I cant however imagine they will allow free trade without signing up to the same standards, or in other words if we diverge away from EU standards the trade tariffs would mount if this makes us more competitive by giving workers less rights, or being more polluting which is what our Brexiters seem to crave given all these rules they want to get rid off.  Which ones of course, no-one seems to know. 

Existing is a risk, a risk we are on the outside looking in with no power to influence, but having to go along with the regulations to keep in the common market. 

We just don't know. 

 

 

 

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22nd Mar 2016 18:25

Why?

ireallyshouldknowthisbut wrote:

I cant however imagine they will allow free trade without signing up to the same standards, or in other words if we diverge away from EU standards the trade tariffs would mount if this makes us more competitive by giving workers less rights, or being more polluting which is what our Brexiters seem to crave given all these rules they want to get rid off.  Which ones of course, no-one seems to know. 

Existing is a risk, a risk we are on the outside looking in with no power to influence, but having to go along with the regulations to keep in the common market. 

We just don't know. 

.  

 

Exactly why do we have to sign up for anything?  Do China, America, India, Japan, or any other countries sign up to EU rules?  Do they pay towards the EU to be allowed to trade with them?  Of course not, and nor should we. The EU has a simple choice, trade with the EU without trade barriers, or lose it's biggest market for many of it's products.  For instance in 2015 7% of VW's total; production was sold in the UK. The figures for Audi, Skoda, & Mercedes, were similar. French farmers and wine producers would have their market slashed similarly. 

Scaremongering about workers rights are completely groundless. It is quite possible that without EU interference British workers may, by now, have had better rights than those the EU imposes. Similarly the scaremongering about pollution is groundless. Indeed much of the air pollution in the UK actually originates in France and blows over to the UK. 

By "looking in from the outside" we will have more power, not less, After all we will not be tied by the petty rules and political correctness imposed by unelected petty minded self serving Brussels bureaucrats and will, once again, be a free nation, able to determine our own future.  

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23rd Mar 2016 09:06

Again, links

Lingfield wrote:
Exactly why do we have to sign up for anything?  Do China, America, India, Japan, or any other countries sign up to EU rules?  Do they pay towards the EU to be allowed to trade with them?  Of course not, and nor should we. The EU has a simple choice, trade with the EU without trade barriers, or lose it's biggest market for many of it's products.  For instance in 2015 7% of VW's total; production was sold in the UK. The figures for Audi, Skoda, & Mercedes, were similar. French farmers and wine producers would have their market slashed similarly.
You keep quoting statistics, expecting us to take them on faith. The more you quote unsupported statistics and unsubstantiated facts without providing links, the less confidence I have in anything you say. That's even without questioning the claim that 7% constitutes the "biggest" market. Latest statistics I have been able to find say that there are four countries that top that.

You accuse the report of being based on invalid reasoning, but I can read that to judge for myself. How about offering your own claims up to the same scrutiny.

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22nd Mar 2016 19:42

How consultancy works

Here is how consultancy works:

1.  You have an issue, and a pre-conceived idea what the answer is.

2.  You tell the consultant about the issue and your views.

3.  Your hire the consultant.

4.  The consultant reports in line with your pre-conceived idea.

5.  You pay the consulttant.

In my career, I have seen this work especially well where the Board Directors feel they are underpaid by 20% and bring in "benchmarking consultants" to tell them it is really 30% or 40%.

Clearly the process also works with EU referenda.

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22nd Mar 2016 20:01

The Hungarian PM

Here is an interesting speech by Victor Orban, but I am sure the 'Remains' won't be rolling out the views of this Prime Minister to balance the views of Obama.

http://budapesttimes.hu/2016/03/19/door-slammed-in-eus-face/

Add in the claims that many Dutch, French, and even German citizens want their own referendum (if true) makes one wonder if a Remain vote will be very short lived anyway. Best get out and get our own deals in place before all hell breaks loose.

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22nd Mar 2016 21:28

Basic fact checks

@lingfield, other countries do not have full tariff free access to the EU.  Try importing some stuff from India to the UK, something i have first hand knowledge of.  

You have to go through a great long list to see if your product has duty or not. Quite why the UK will get special treatment is unclear and illogical to me.  If you leave the club, you don't get the benefits, and if something is 'too cheap' a tariff gets loaded on it. 

I do find it quite amusing however to see brexiters bang on about [your quote] "overbearing EU regulation" which mainly is to do with workers right, and product standards and the environment than go on to say, actually we are going to keep all that.  

What rules ARE going to be cut in your utopia?  We just don't know, I am yet to see a well considered list of what we can do outside of the EU we cant do inside, and what would be the priorities to cut,just some generic comments about red tape.  

Which brings us back to if this is one of the main points for leaving why is there not a well researched, even handed detailed policy document explaining the way forward and what gets cut or changed and why?

Ditto what happens to people currently in the UK on freedom of movement rules? Or our Brits in the EU?

One of the biggest issues in the UK - so I am told by Ukippers- not even a tentative plan has been put out for consultation on ow it will be dealt with.

Id hate to go out for the evening with a Brexiter, I wouldn't know where we were going or what we would be doing when I go there, or why its better than staying at home other than some bland assurances that I would get all the benefits of being at home, without the downsides. Without specifying what the benefits are or the downsides given my idea of the benefits might well be your idea of a downside.  

 

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22nd Mar 2016 22:05

UK businesses would thrive if we left the EU

ireallyshouldknowthisbut wrote:

You have to go through a great long list to see if your product has duty or not. Quite why the UK will get special treatment is unclear and illogical to me.  If you leave the club, you don't get the benefits, and if something is 'too cheap' a tariff gets loaded on it. 

The logistics of agreeing trade deals with 28 countries make it a long drawn out affair which can take years. Compare the trade deals made by Switzerland (for example) which has a greater number of Free Trade Agreements than the EU. Country by country trade deals can be agreed much more quickly and with country specific needs in mind. The EU does not allow us to make our own trade agreements and this causes hardship to many businesses that want to export to non-EU countries. Big business loves the EU as it only has to lobby the secretive EU commissioners instead of lobbying the governments in every EU country. Big business gets generous grants from the EU, and they have a big advantage over small business in the UK, but the UK needs small business as they employ far more people in total than big businesses.

https://en.wikipedia.org/wiki/List_of_bilateral_free_trade_agreements

http://www.telegraph.co.uk/news/newstopics/eureferendum/12200391/Millions-of-home-owners-to-receive-letter-this-week-from-British-businessman-persuading-them-to-back-Brexit.html

http://corporateeurope.org/power-lobbies/revolving-doors

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23rd Mar 2016 09:11

Cat is out of the bag

I wonder if AW saw this debate coming after posting the article...?

ireallyshouldknowthisbut wrote:
Id hate to go out for the evening with a Brexiter, I wouldn't know where we were going or what we would be doing when I go there, or why its better than staying at home other than some bland assurances that I would get all the benefits of being at home, without the downsides. Without specifying what the benefits are or the downsides given my idea of the benefits might well be your idea of a downside.

It's pretty easy to say that if the alternative is simply "as is". I agree, they should be clearer.

I'm still on the fence. I disagree with tariffs and duties to some extent but at the same time I think entry to the UK should be based on a fair system that judges you on abilities rather than simply because you hold an EU passport.

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By kdbr
23rd Mar 2016 09:10

CBI?  Scaremongering in a

CBI?  Scaremongering in a referendum?  Who'dathunkit?

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23rd Mar 2016 10:31

Office for Budget Responsibility

Leaving the EU is unlikely to have a major impact on the economy for at least five years, the head of Britain’s independent economic watchdog said yesterday.

The Office for Budget Responsibility was dragged into the Brexit debate last week after George Osborne claimed the watchdog was in favour of Britain remaining in the EU.

OBR chairman Robert Chote yesterday accused the Chancellor of ‘selectively quoting’ from its neutral assessment – and said Mr Osborne had not asked the OBR to analyse the likely impact of Brexit.

 

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By mabzden
23rd Mar 2016 10:47

1.6% of GDP

If you compare PwC's remain forecast to their FTA scenario, it will cost us 1.6% of GDP to leave the EU. I've seen other forecasts putting the figure at 2%, so it seems a reasonable figure.

So, for me, the question is whether the sovereigny gain of leaving is worth a hit of 1.5-2% in GDP. It's a lot of money but, at the same time, it's less than a year's growth.

I assume the remain forecast assumes the EU keeps ticking along without any major crisis or breakdown. This seems unlikely given the shocking economic woes of the Euro zone, the social and economic problems caused by mass migration, and the resulting rise of far-right anti-EU political parties.

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23rd Mar 2016 12:17

Brexit

Hopefully we will vote to leave the EU and the doomsayers say it will cost us "money"  

If it costs me a few thousand pounds a year were we to leave the EU that would be a price I would be happy to pay.

 

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By Ammie
23rd Mar 2016 13:09

NO ONE KNOWS.....JUST GUESSING AND PROJECTING

As accountants we all know that, for those that way inclined, figures can be made to look any which way you choose, so I take all stats with a large dose of scepticism.

After all isn't that how Greece qualified to join the "club"?

Strange how stats that show just how much we commit to the EU with little in return are few and far between.

Only those with their snouts in the trough are crying loudest.

I often wonder how the earth goes round for those nations not in the EU, and more so how did we ever survive pre EU. Maybe we were lucky.

Another French/German inspiration that has not achieved what it set out to, but created some rather unsavoury financial moves.

Although, if I was Greek, Spanish, or Italian I would be thanking the mighty one for the EU. Not forgetting Turkey waiting in the wings!!

If the vote goes the wrong way there will be as many more as it takes for it to go the right way!!

A bit like the Scottish independence one will!!! And, I believe the Irish, in out, one did.

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23rd Mar 2016 13:35

VAT??

Am I correct in remembering that VAT was introduced when we joined the EU?

And would it not follow that it should cease upon leaving as we no longer have to contribute to supporting the Brussels Bureaucrats and their subsidies?

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23rd Mar 2016 13:53

VAT

Jeffers99 wrote:

Am I correct in remembering that VAT was introduced when we joined the EU?

And would it not follow that it should cease upon leaving as we no longer have to contribute to supporting the Brussels Bureaucrats and their subsidies?

 

We could indeed dump VAT and return to the old "Purchase Tax". At least Purchase Tax only had to be accounted for by the retailer, not at every part of the manufacturing process, so there was far less red tape involved, and is similar to the system currently in use in Canada.

The other bonus of course is that we get to keep the proceeds instead of paying millions a day to the EU.  

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