Britain’s government predicts that a “Hard Brexit” — Britain leaving the European Union without access to the Single Market — will cost the UK £66 billion ($81.2 billion) a year in lost tax revenues.
According to “leaked government papers” seen by The Times newspaper, the UK Treasury is warning cabinet ministers that the country’s GDP could fall as much as 9.5% because it would have to rely on the World Trade Organisation rules for trading and therefore it would miss out on more favourable trading tariffs that come with being a member of the 28-nation bloc.
The Treasury expects both trade and foreign investment in Britain to be around a fifth lower than it otherwise would have been if the UK relies on WTO rules for trade. This would also have a knock-on negative effect for productivity, hence the huge drop in tax receipts.
The leaked document is apparently a “draft cabinet committee paper, ” which is intended to inform those in charge of negotiating Britain’s exit from the EU.
The Times says the drop in tax revenue is the equivalent of 65% of the annual budget for Britain’s National Health Service, showing just how huge a loss it would be to the UK.
Britain voted to leave the EU on June 23. Since then, prime minister Theresa May has repeatedly said that “Brexit means Brexit” and pledged to pull the UK out of the 28-nation bloc with the best deal possible. However it is looking like Britain is going to have a “Hard Brexit” no matter what, judging by May and her cabinet’s stance on immigration.
Simon Wells and his team of economists at HSBC said in their client note earlier this month that “immigration control appears a higher priority than full Single Market access,” following the PM’s speech at the Conservative party conference.
Britain has pretty much been given a choice by EU officials between controlling immigration and access to the Single Market. While no official negotiations can actually start until May triggers Article 50, which officially gives the UK two years to negotiate its exit with EU officials, the UK government’s repetition on focusing on immigration instead of access to the Single Market all points to a “Hard Brexit.”
Britain cannot have best of both worlds. Taking greater control of immigration by opting out the Freedom of Movement Act, which allows any EU citizen to enter the country, means that the country will have to relinquish its single market membership — like Turkey.
If the UK wants single market access, it will have to adhere to EU immigration rules — like Norway.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.