NIESR Press Release: 'Brexit could cut tax revenues by almost £40 billion a year'
The decision to leave the European Union is likely to worsen the UK’s public finances as a smaller economy will mean there could be a shortfall in tax revenues of almost £40 billion a year, according to an election briefing by the National Institute of Economic and Social Research.
It estimated that the net revenue shortfall would average around £4 billion-£12 billion per year in the next five-year Parliament but that could rise to almost £40 billion by 2030 if the UK leaves the EU without a deal and ends up trading on World Trade Organization terms.
“Brexit will weaken the public finances”, said Garry Young, Director of Macroeconomic Modelling and Forecasting. “Because of the impact on economic growth, lower tax receipts will leave the next government having to find up to £12bn (slightly over 0.5% of GDP) in higher borrowing or taxes increases in each year of the next parliament.”
- Any form of Brexit will leave the economy smaller than it would have been had the UK remained in the EU. This means that tax revenue will be smaller than it would otherwise have been. The likely shortfall in revenues will depend on the relationship that the UK agrees with the EU.
- Leaving on the terms of the Prime Minister’s deal will result in tax revenue being lower by about £4 billion per year in the next Parliament and just under £20 billion in the long term (by 2030). But leaving with a deal will lead to a revenue shortfall of more than £12 billion in the next Parliament and almost £40 billion by 2030.
- These figures include saving around £10 billion per year from contributions that can be recycled into domestic government spending if the UK leaves under the terms of the Prime Minister’s deal.
- Any net revenue shortfall will have to be met through higher borrowing, higher tax rates or a combination of both.
- NIESR estimates the latest deal agreed between the government and the EU would result in economy output being 3%-4% lower in the long run than it would have been with continued EU membership. A clean-break Brexit would hit GDP by 5-6 per cent.
Notes for editors:
This full General Election Briefing on the Economic and Fiscal Impact of Brexit can be found here.
NIESR’s microsite containing briefings, podcasts and vodcasts on the General Election can be found here.
For further information or to arrange interviews, please contact the NIESR Press Office or Luca Pieri on 0207 654 1931/ l.pieri [at] niesr.ac.uk