The head of the west’s leading economics thinktank has accused those campaigning for Britain to leave the European Union of being “delusional” as he warned that departure would cost the average household a month’s salary, £2,200, by the end of the decade.
Angel Gurría, secretary-general of the Organisation for Economic Cooperation and Development, said future generations would pay the price of Brexit as he launched a report showing that departure would impose a “persistent and rising shock” on the economy.
“The UK is much stronger as a part of Europe, and Europe is much stronger with the UK as a driving force,” Gurría said in a speech at the London School of Economics. “There is no upside for the UK in Brexit. Only costs that can be avoided and advantages to be seized by remaining in Europe. No one should have to pay the Brexit tax.”
Gurría said it was a “delusion” to claim the UK would be in a stronger trading position if it left the EU. “The evidence over the past four decades suggests that, far from holding back growth, harnessing the potential of the European single market enhances living standards,” he said. “The responsibility borne by British voters on 23 June is very serious indeed. It will be an act of intergenerational responsibility.”
Adding its voice to negative assessments by the Treasury and the International Monetary Fund, the Paris-based OECD said a Brexit vote on 23 June would provide a major negative shock to Britain and have ripple effects on the rest of Europe.
“In some respects, Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the UK remained in the EU,” the OECD said.
In an interview with the Guardian, the OECD secretary general said: “Those who argue for Brexit are wrong and that is because they have not been properly informed about the costs. Once they have seen what the OECD has to say, the LSE, the CBI and the Treasury, all of them looking at different aspects of leaving, people will ask themselves why they should pay for the equivalent of one month’s income, which is a heavy tax, to put themselves in a worse situation.
“If anything, I think we are underestimating the downsides from leaving the EU.”
Vote Leave spokesman Robert Oxley said: “The OECD said the UK would receive ‘great benefits’ from joining the ERM [exchange rate mechanism]. It recommended that we should join the euro. So why should we listen to their doom-laden predictions about leaving the EU?”
The OECD’s policy paper said that even before the UK’s formal departure from the EU, which the thinktank assumes would happen in late 2018, the UK would be hurt by weaker confidence and more expensive credit.
Once the terms of a “divorce” settlement had been agreed, Britain would face higher trade barriers and feel the early impact of restrictions on immigration, it predicts.
“By 2020, GDP would be over 3% smaller than [with continued EU membership], equivalent to a cost per household of £2,200 [at today’s prices],” the OECD added. The rest of the EU would see GDP shaved by one percentage point by the decade’s end.
It added that in the longer term, UK labour productivity would be slower because there would be less inward investment and restrictions on labour mobility would create a smaller pool of skills.
Echoing the assessment made by the Treasury earlier this month, the 34-nation OECD said the costs of exit would increase over time. “By 2030, in a central scenario GDP would be over 5% lower than otherwise,” it said, “with the cost of Brexit equivalent to £3,200 per household (in today’s prices).” The Treasury predicted that the economy would be 6% smaller by 2030.
The OECD said that with opinion polls pointing to a tight contest, Brexit speculation was already having an impact on the economy: “Financial markets have increasingly begun to price in the risk of Brexit. Economic uncertainty has also risen and started to hurt confidence and business investment, weakening UK growth.”
It highlighted the risk that investors would move their money out of the UK in the event of a decision to end the 43-year relationship with the EU, making it more difficult to fund a current account deficit running at a record high of 7% of GDP. Sterling would fall after exit.
The OECD said a slowdown in immigration would be one of the main ways the UK would be affected if it decided to leave.
“Immigration accounts for one-half of UK GDP growth since 2005, with more than 2m jobs created. Curbs to the free movement of labour from the EU and, more importantly, a weaker UK economy after exit, would gradually reduce the incentives for economic migration to the UK and would be a cost to the economy,” it said.
The report said there would be gains to the UK from Brexit, including the saving made on payments to the EU budget and the ability to reduce red tape. But it said the benefits were likely to be limited.
“The UK labour and product markets are amongst the most flexible in the OECD, which suggests that EU regulations are not an important barrier. Nonetheless, it would be possible to pursue further regulatory liberalisation, although this would be challenging since regulations are comparatively low and the gains would be limited.”
Britain is a net contributor to the EU budget, and would save around 0.3-0.4% of GDP per year after Brexit. Describing this as a “relatively small amount”, the OECD added: “Lower GDP growth would weigh on the fiscal position significantly, limiting the scope to use the net EU budget savings to relax fiscal policy.”
