A report carried out by the CBI has claimed that UK could face up to 1 million job losses and cost the average household around £3,700 by 2020.
The warning of a deep economic shock to the country comes after analysis conducted by PricewaterhouseCoopers. The report says that Brexit would cost the British economy around £100bn by 2020, which is the equivalent of around 5% of GDP, and that the long-term economic damage may never be recovered.
According to the report, the average household income would fall by between £2,100 and £3,700 by 2020- in the event of a Brexit vote. The report also said that unemployment rates could go up by 2-3%, from its current level of just 5.1%, this would represent around 950,000 job losses.
The director general of the CBI, Carolyn Fairbairn, said:
“This analysis shows very clearly why leaving the European Union would be a real blow for living standards, jobs and growth. The savings from reduced EU budget contributions and regulation are greatly outweighed by the negative impact on trade and investment. Even in the best case this would cause a serious shock to the UK economy.”
However, the report has drawn criticism from campaigners in favour of leaving the EU, who are convinced that this is just another scare tactic designed to worry voters into voting to stay in the European Union.
The CEO of Vote Leave, Matthew Elliott, said:
“Even in the CBI’s skewed choice of scenarios for exit, they are forced to admit that employment and the economy will continue to grow after we Vote Leave.
“The EU funded CBI are desperate to recreate the same scare stories they spread when they urged Britain to scrap the pound and join the euro. They were wrong then and they are wrong now. If we want to take back control and strike the kind of free-trade deal the CBI refuses to even consider, the only safe option is to Vote Leave.”
The CBI has taken a clear pro-EU stance, in contrast to the slightly smaller British Chamber of Commerce, which has attempted to maintain an impartial stance. The BCC was recently at the centre of controversy after it suspended John Longworth, the director general, after he made comments alluding to the fact that the UK could benefit economically if it were to leave the EU.
Longworth had been suspended following remarks he made stating that the UK’s could have a more prosperous future in the long-term and that its outlook may be “brighter” were it not a member of the EU.
He stated that he was not forced to resign and that he had made the decision in order to be able to speak more openly about his views on the matter.
Speaking to the BBC, he said:
“I don’t regret making those comments at all,”
“I made it very clear when I delivered my speech (on Thursday) that there were additional comments that were of a particular and personal nature”
“What I was trying to do was inform the debate,”
Mr Longworth had held his position, director general, at the BCC for five years.
“I decided to resign in order in order to give me the freedom to speak out on the referendum,” he said.
“It became clear to me that it was incompatible in my role that I was able to speak out. ”
The British Chamber of Commerce said that Longworth understood that his position in support of a Brexit was “likely to create confusion”.
The president of the BCC, Nora Senior, said that because Mr Longworth breached the BCC’s official position of neutrality on the subject, the board was left with no choice but to suspend him.
She also denied that Downing Street had anything to do with the decision.
“Absolutely not. The decision for John to stand down was taken by John himself and the board.”
She went on to reaffirm that Longworth’s resignation was “agreed mutually between Mr Longworth and the BCC Board, and there were no external factors involved”.
In the conference at which he made his remarks, Longworth said that the referendum represented a decision between “the devil and the deep blue sea”. He went on to say that the British public were facing an “undoubtedly tough choice”.
He added that: “I have come to the conclusion that the EU is incapable of meaningful reform, at least in the foreseeable future”.
The CBI-commissioned report has been released just as Sir John Major, the former prime minister, said that the UK is facing a huge moment in its history in the 23 June referendum.
“This vote will be momentous. It will decide Britain’s place in the world for generations to come. It will be a fateful choice: Great Britain or Little Britain.”
He wrote an article in the Telegraph newspaper, setting out his argument for remaining within the European Union.
“When we joined the EU we were the ‘sick man’ of Europe: today, as a result of our domestic reforms and membership of the European Single Market, we have the best performing economy in Europe.”
The CBI stated that the report by PwC had looked at two different Brexit manifestations. The first was a “best case scenario”, and the second was based upon the assumptions that trade negotiations would be prolonged yet eventually resolved. The organisation was very anxious to underline the fact that many more pessimistic outlooks could be envisaged.
The outcomes of both scenarios resulted in British living standards, GDP and employment being “significantly reduced” in the event of a Brexit. Even in the best case scenario, where the UK achieves trade agreements very quickly, the report claims that GDP could fall by 3% by 2020. The report went on to say that economic growth could fall significantly by 2020 and may stop altogether between 2017 and 2018.
“The economy would slowly recover over time, but never quite track back to where it would have been. Leaving the EU would mean a smaller economy in 2030.”
This analysis is the most detailed examination of the impact of Brexit that has been released to date. It joins similar warnings from JP Morgan, Citibank and BlackRock, that the economy could be seriously damaged by a Brexit.
The Centre for Economic Performance at LSE released a report last week that also states that British living standards and trade will be damaged if an “out” vote wins the referendum. In their research, the body states that the best case scenario would still see household incomes hit by around £850 per year. The organisation went on to say that this figure could rise to as much as £6,400 per household if trade and productivity are more severely impacted; this represents a fall not seen since the peak of the financial crisis in 2008-09.
The government released its first official analysis into the outcome of a Brexit last month. The research predicted ten years’ worth of uncertainty that would impact “financial markets, investment and the value of the pound”.
On Monday, Fairbairn, along with the CBI economics director, Rain Newton-Smith, will outline the case for remaining within the EU in a lecture at LSE, which will be delivered to business leaders.
In the report from PwC and the CBI, the “Free Trade Agreement Scenario” is the most optimistic outcome. This scenario envisages what would happen if the UK manages to secure free trade with the EU by 2020. This would result in a small rise in non-trade barriers, due to no longer being part of the single market. It also assumes that a new trade deal will be signed with the US.
Another scenario that it envisages is the “WTO scenario”. This scenario postulates what would happen if no free trade agreement is reached with the EU- forcing the UK to trade under World Trade Organisation regulations. In this scenario, the UK would face increased trade and non-trade barriers with the EU. The UK would sign a new deal with the US and other countries in 2026.
The PwC states that under the WTO scenario, British investment would fall by 25% by the year 2020, and would still be up to 10% lower by 2030, compared to what is projected in the event of the UK choosing to stay. If a free trade agreement can be reached, investment could drop by 16% by 2020.
One week ago, the CBI published the results of a poll amongst its members (who employ a third of private sector employees in the UK) that revealed that 80% of them believed that being part of the EU is best for their businesses, a further 77% said that it would be better for the UK economy.
On Monday, the Britain Stronger in Europe campaign will deliver leaflets to 20m homes across the country- its biggest drop to date.