Plan would shave up to 4% from size of economy by the end of 2020s, says thinktank

Boris Johnson’s Brexit deal is expected to cost the UK economy as much as £70bn over the next decade compared with remaining in the EU, according to one of the country’s leading economic thinktanks.

In a warning in the run-up to a snap election, the National Institute of Economic and Social Research (NIESR) said the prime minister’s plan would shave up to 4% from the size of the economy by the end of the 2020s, equivalent to about £1,100 per person per year, compared with a situation where Britain remained in the EU.

It said that Johnson’s plan would fail to generate a “deal dividend” for the economy, contrary to government claims that MPs passing the withdrawal agreement would spur economic growth by lifting the current cloud of uncertainty facing the nation.

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Instead, it warned that the withdrawal agreement and proposed free-trade deal put forward by the prime minister would result in a smaller economy than an extension and continued uncertainty.

Arno Hantzsche, the principal economist at NIESR, said: “Brexit has already had a lasting impact on the economy. We don’t think that should the government’s new proposed deal be ratified, that there would be a boost to the economy. We don’t expect there to be a deal dividend at all.”

The intervention by Britain’s oldest independent economics research organisation comes after the chancellor, Sajid Javid, shelved plans to hold an early November budget, effectively removing an opportunity for the publication of official growth forecasts ahead of an election.

Javid has so far rebuffed MPs’ demands for the Treasury to carry out a thorough economic assessment of the government’s Brexit deal, arguing that it was “self-evidently in our economic interest” for parliament to push it through.

NIESR warned that the threat of a no-deal Brexit and heightened levels of uncertainty over the UK’s trading relationship with the EU had dragged down economic growth since the 2016 EU referendum, resulting in an economy 2.5% smaller than it would have otherwise been.

It said that parliament passing Johnson’s deal would lift some of the uncertainty, encouraging higher levels of business investment in Britain. However, it said that Johnson’s deal implied higher barriers to trade with the EU, lower levels of migration and weaker growth in labour productivity over the long term than under current arrangements.

Warning that the economy would be smaller under such a scenario, it said that striking new free-trade deals around the world would not make up for the impact of leaving the EU.

In forecasts that could embarrass the prime minister, NIESR said the UK economy would be smaller at the end of the 2020s under Johnson than it would have been under Theresa May if she had won approval for her Brexit deal. All Brexit options would result in a smaller economy after a decade than remain, it added.

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Even if Johnson’s deal was approved by parliament, it warned that there was still significant doubt that a free-trade deal with the EU could be struck in time for the start of 2021. Failure to strike a deal before the end of next year could result in the country crashing out of the EU and reverting to World Trade Organization rules, it added.

The UK economy would be between 3%-4% smaller under Johnson’s deal than under remain and would have been 3% smaller under May’s deal. However, it said that its main assumption was that the UK economy would be 2% smaller if Brexit uncertainty continued for the next 10 years compared to remaining in the EU.

Jagjit Chadha, the director of NIESR, said: “The UK economy will continue to suffer what we’re terming a slow puncture. Not a pop, not a bang. But a slow puncture, as investment is deferred in the face of uncertainty.”