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.”
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 UKIP economics spokesman Mark Reckless pointed out the report was based on outdated growth forecasts.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.
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).
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.
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.
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.
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.
About Tom Herbert
Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have any comments or suggestions for us get in touch.