Post-Brexit customs union would leave Britain 3% poorer, says NIESR

UK GDP would be 3% lower if the UK retained a customs union with the EU after Brexit than if it had remained in the bloc, according to a report on Thursday.

This is equivalent to a loss of more than 2% in GDP per head, worth around £800 per person per year to people in the UK, the National Institute of Economic and Social Research (NIESR) said. This is around half the effect it would expect if the UK were to leave the EU without a deal.

Garry Young, director of Macromodelling and Forecasting, said: "Leaving the EU for a customs union will make it more costly for the UK to trade with a large market on our doorstep, particularly in services which make up 80% of our economy. This inevitably will have economic costs, with widespread implications. We estimate that all regions will be adversely affected and that there will be fewer resources available to pay for public services."

NIESR said that while a customs union arrangement is seen as being "as frictionless a trade relationship as is possible" without the UK being in the single market, it would nevertheless involve significant non-tariff barriers that would hinder trade, particularly in services. That would be a material economic burden in view of the importance of services trade to the UK economy.

According to the report, overall gross domestic product 10 years after Brexit would be 3.1% lower in a customs union scenario than if Britain remained in the EU, while tax revenue would drop 2.9%.

"A smaller economy would generate less income with which to pay for public services. We estimate that, partly due to a lower population associated with less net inward migration, tax revenue would be around £26 billion a year lower ten years after EU exit than it would have been had the UK stayed in the EU. There would be some saving from not being a member of the EU, though we expect that the UK would still need to make some financial contribution to EU programmes. In addition, a lower population due to less net inward migration would mean that demand for public services would be lower.

"Taken together, there would be an effective revenue shortfall of around £13 billion a year that could not be spent on public services. To put this in context, this is slightly larger than the 2017-18 budget of the Department of Business, Energy and Industrial Strategy."