The highly respected Institute for Fiscal Studies accused the Brexit campaign on Wednesday of peddling “clearly absurd” figures suggesting Britain would save large sums of money if it left the EU.
Rather than saving £350m a week, or £18bn a year, from Brexit, the IFS research suggests a vote to leave would cost £20bn to £40bn a year and require additional austerity, lasting into the next decade, if the government still wanted to eliminate the deficit.
The IFS work is the most comprehensive analysis to date of the hit to the public finances from leaving the EU even though the think-tank used other organisations’ economic projections rather than its own.
Vote Leave dismissed the report as based on “entirely negative assumptions about our economy”, suggesting that the IFS “is not a neutral organisation” since it receives some of its funding from EU research grants.
Andrea Leadsom MP said: “It’s no wonder people are being turned off this debate given the continuous campaign to do down the British economy from EU-funded organisations.”
Speaking on the BBC Today programme on Wednesday morning, Brexit campaigner John Redwood MP declined to repeat Vote Leave’s allegation that the IFS report was written because it was in the pay of European institutions, but said the IFS was part of the “cozy establishment” and that Britain’s economy would gain immediately from Brexit. The government could spend the UK’s net contributions domestically, he said.
He also accepted implicitly the Vote Leave £350m a week figure was bogus by saying the additional spending could be around half that level.
Paul Johnson, director of the IFS, responded that any money saved would disappear if the economy was up to half a per cent smaller than current forecasts imply. A bigger hit than this was likely because Brexit would trigger a prolonged period of uncertainty. “We know uncertainty is bad for growth,” Mr Johnson said.
Many organisations have estimated the short-term and long-term economic effects of Brexit with an overwhelming consensus that the UK economy would be harmed by short-term uncertainty in leaving the EU and would subsequently face a more difficult trading environment than at present.
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The IFS, which is independent, gathered the results from studies by the Treasury, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the National Institute of Economic and Social Research and other private sector groups and fed these into its forecasting model of the public finances.
It found in its central range of estimates that the economy was still likely to be bigger in 2019-20 than today, but there might be a recession and overall growth would be between 2.1 per cent and 3.5 per cent lower than if Britain stayed in the EU.
This level of disappointment would leave the budget deficit in 2019-20 about £20bn-£40bn higher than otherwise, the IFS said. In calculating that figure, it took account of gains from Britain no longer paying into the EU budget, finding these were more than offset by the effects of a weaker economy on tax revenues.
Mr Johnson said: “Getting [a balanced budget] from there, as the government desires, would require an additional year or two of austerity at current rates of spending cuts.”
The IFS poured scorn on the Leave campaign’s slogan that voting for Brexit would enable Britain to stop sending £350m a week to Brussels because the figure does not deduct money never sent to the EU and automatically deducted under Britain’s rebate.
IFS estimate of possible increase in UK deficit caused by Brexit, leading to 2 further years of austerity
“It is equivalent to suggesting that were the UK to leave the EU and not make any financial contribution to the EU’s budget then remaining EU members would continue to pay the rebate to the UK. That is clearly absurd.”
The IFS also hit back at accusations about its funding from European institutions, primarily the European Research Council, which funds academic research in EU and non-EU countries associated with member states.
Countering the Vote Leave comment that the IFS finances would be in deficit after a Leave vote, the IFS said: “If the UK left the EU then as long as the UK joined the existing list of associated countries our funding from the EU would not be at risk.”
