OECD warns over 'Brexit tax'

Britain’s economy could be 3% lower by 2020 if the UK votes to leave the EU, according to the latest study from the Organisation for Economic Co-operation and Development.

The projected hit to living standards would amount in effect to a permanent ‘Brexit tax’ on households, the OECD said.

In a speech at the London School of Economics, OECD Secretary-General Angel Gurría said: “Leaving Europe would impose a Brexit tax on generations to come. Instead of funding public services, this tax would be a pure deadweight loss, with no economic benefit.”

Gurría said leaving the EU would effectively be the equivalent of missing out on one month’s salary within four years.

A decision to leave the EU would cause a “severe negative shock” to the economy, weakening gross domestic product growth for many years, equivalent to a cost per household of £3,200 per year by 2030 and as much as £5,000 in the worst-case scenario.

“The longer-term effects of weaker technical progress, migration and capital caused by Brexit are projected according to three scenarios: optimistic, central and pessimistic. In the optimistic projection the negative impact on GDP is around 2.7% by 2030, but in the pessimistic scenario it would be more than 7.5%.

“In the central scenario UK GDP would be more than 5% below what would be expected if the country remained in the EU. This GDP shortfall is equivalent to £3,200 per household.”

The study also highlighted that the estimated costs of Brexit do not take into account the fact that remaining in the EU could prompt additional GDP growth as further development of the Single Market boosts trade and foreign direct investment.

The OECD said that concluding a free trade agreement with the EU - similar to the one between the EU and Canada - could somewhat offset the damage to UK trade by 2023, but the costs of accessing the Single Market would still be higher than they are now after that time.