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Potential Brexit budget savings are less than Osborne makes out of thin air

Jonathan Lindsell, 21 March 2016

A crucial part of the Leave campaign is the idea that Britain could end budget payments to the EU. FullFact, and our own Civitas EU Facts show that the maximum amount that could be directly saved, based on last year’s budget contributions, is £8.5 billion. This is the total net amount Britain sent to the EU. InFacts argues the highest direct saving would be more like £6.3bn.

If we left the EU we may not save this much each year: it depends what exit option we and the EU-27 settle on. The Norway option involves continued payments (£106 per capita for every £128 paid by Britain per capita) as does the Switzerland option (£53 per capita), although they both pay less than Britain does.

In return for continued single market access (that is, access without trade tariffs or regulation barriers) many central and eastern European states are likely to drive hard for Britain to keep contributing large amounts to the EU budget in the future. This is because those countries sell relatively little to Britain, but benefit a lot from UK contributions to structural and cohesion funds. While Germany would want to agree a swift deal that covers trade, Bulgaria could veto any deal that did not include continuity for funding (and free movement).

For this reason it is highly likely that substantial UK contributions to the EU budget will continue unless Leavers bravely opt for the fully detached WTO option, which carries many trade risks. Still, even if we assume Britain will save £8.5 billion per year, this should be put in context.

In the November 2015 autumn statement, Chancellor George Osborne found £27 billion ‘down the back of the sofa’ for the 2015-2020 spending period. This £27 billion was essentially the result of Office for Budget Responsibility predictions for Britain’s economy improving in productivity, meaning there would be about £27 billion more taken in tax.

However in last week’s budget we saw an even larger sum, this time lost down the sofa, as predictions were revised for a slight economic slowdown. As a result Osborne had to announce that he expected to take much less across this parliament: £56 billion less.

This £56 billion represents over £10 billion more than five years’ worth of maximum EU savings (£42.5 billion), lost on a whisper and a failed prayer. What is worse is that the OBR’s projection really didn’t change very much: the November 2015 projection saw our productivity grow at 1.9% to 2021, while last week’s projection saw growth at 1.7% (p.4). The change in projection is 0.2% points.

This highlights an important point. Even the maximum gains the British could win from Brexit are dwarfed by minor changes in our economic fortunes. This means that for Brexit to be a net loss in public spending terms does not require a catastrophic worst-case Brexit scenario. All it requires is for Brexit to be 0.2% points worse for productivity than Remaining would be, and the entire budget savings for the next five years would be wiped out.

You would need a strong, convincing economic plan to assure voters that productivity would not take such a minor hit. So far, the many Leave factions have agreed no plan at all.

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