UK 'Brexit' would hit GDP, tax receipts: Osborne

The UK economy would be 6% smaller by 2030, leaving a potential £45bn hole in public finances if Britons voted to leave the EU, according to analysis to be published by the Treasury on Monday.

Finance Minister George Osborne added that this would be the equivalent of £4,300 per household and taxes would have to rise 8% to bridge the gap in tax receipts. The country is due to vote on “in/out” referendum on June 23.

He said the poorest households would be hit hardest. Opponents described the analysis as "absurd" and observers were treated to the sight of Conservative MPs attacking the Treasury's record on economic forecasting - ironic since Osborne has been at the helm of that department since 2010.

"They are the people whose incomes would go down, whose house prices would fall, whose job prospects would weaken, they are the people who always suffer when the country takes an economic wrong turn," he told the BBC.

The Treasury analysis is based on the annual impact after 15 years outside the EU around three scenarios: A deal like Norway with membership of the European Economic Area; a bilateral arrangement similar to the one being agreed with Canada; a trade relationship under World Trade Organisation.

"The negative impact on GDP would also result in substantially weaker tax receipts. This would significantly outweigh any potential gain from reduced financial contributions to the EU. The result would be higher government borrowing and debt, large tax rises or major cuts in public spending," the report states.

"After 15 years, even with savings from reduced contributions to the EU, receipts would be £20bn a year lower in the central estimate of the EEA, £36bn a year lower for the negotiated bilateral agreement and £45bn a year lower for the WTO alternative."

Taking the middle scenario of £36bn, the report stated the basic rate of income tax would have to rise by 8p in the pound to plug the fiscal hole.

Paul Johnson, director of the influential Institute for Fiscal Studies, said it was difficult to predict the precise impact of Brexit, but said the basic premise of the analysis was accurate.

“That's actually entirely in line with all of the analysis that other academic and research organisations have done because we really pretty much know for sure in economics that free trade is good for growth and if you move the UK out of the European Union that will make trade and investment more costly and that will be bad for growth – exactly how bad is very difficult to judge," he said.

"The Treasury numbers are perhaps a little bit above the independent analysis of how bad but they're not out of line with some of them.”

Osborne earlier on Monday took deliberate aim at “Brexit” cheerleader and potential rival for the leadership of the Conservative Party Boris Johnson, calling his suggestion that Britain could retain all its EU membership benefits even outside the bloc “economically illiterate”.

Johnson has proposed Britain enter a free-trade agreement with the EU similar to that currently being agreed by Canada.
He effectively laid down a challenge to “leave” campaigners to put forward a clear vision of which trade model they preferred.

“You can’t have your cake and eat it. And these people who go around saying Britain would have all the benefits of the European Union without any of the obligations, that is economically illiterate and it frankly misunderstands the nature of the relationship that Britain might be able to strike outside the EU,” Osborne said.

“The Germans or French would not give that to us because it is a better deal than Germany or France and it is not credible. You completely misunderstand Britain’s negotiating hand if you think we could get a better deal than France or Germany. It is just not credible.”

Osborne's comments came a day after French Economy Minister Emmanuel Macron said Britain would be “completely killed” in trade talks with other countries if it was outside the EU.