The Institute for Fiscal Studies says that the pro-Brexit camp’s claims of the money saved by leaving the European Union are “absurd”, instead predicting Brexit could add two years to the UK’s austerity measures.
A report from the institute claims that the £350m a week that the ‘leave’ campaign claims would be saved by leaving the EU is inaccurate. It says the gross contribution of £18.8bn that the UK makes to the EU cannot be taken in isolation, without accounting for the rebates the UK gets from Europe.
“Ignoring the rebate is clearly inappropriate. 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,” states the report.
Instead the IFS says the UK would save £8bn a year in EU contributions if it left the union, but points out that a fall in national income of 0.6 per cent would offset these savings.
The institute states that in the optimistic scenario of the UK’s national income being 2.1 per cent lower in 2019, borrowing would need to be £20bn higher. To counter this the UK would need public service spending cuts of £5bn, cuts to social security spending of £5bn and a tax rise of more than £5bn.
“It is unlikely that government would respond with bigger spending cuts and tax rises in the short run. More likely austerity would be extended by another year [in an optimistic scenario] or another two years,” the report states.
Carl Emmerson, IFS deputy director and an author of the report, says that the effects of leaving the EU are “uncertain” but adds: “The overwhelming weight of analysis suggests that the economy would shrink by more than enough to offset the positive effect on the public finances of the reduced financial contribution to the EU budget.”