The government's controversial analysis into the impact of Brexit has been published by a cross-party group of MPs - warning "London's status as a financial centre could be severely eroded".
The analysis, published this morning by the Brexit select committee, suggests the impact could be between 3.1 per cent and 6.6 per cent over 15 years, although that drops to between 2.4 per cent and 5.9 per cent on a per capita basis. On average, it warns that a free trade agreement will harm the UK's GDP by a forecast 4.8 per cent.
In the event of the UK becoming a member of the EEA, economic losses would be less: drops of between 0.6 and 2.6 per cent are forecast. But a hard Brexit, which would leave the UK operating under WTO rules, would see the impact rise, with between five and 10.3 per cent being shaved off the UK's GDP.
The analysis suggests that a non-EU trade deals that could boost GDP by between 0.2 per cent and 0.7 per cent on a long term basis. A deal with the US will account for around 0.2 per cent of that.
On a sectoral basis, the impact on financial services ranges between around -0.17 per cent on an EEA basis to around -7.5 per cent on a WTO basis.
In the case of an FTA, the document warns that market access would be "hampered almost to the same extent as in the WTO scenario".
It adds: "These scenarios would prohibit firms from providing regulated financial services to the EU from the UK outside of certain exemptions, for example the EU's equivalency regime. However, the limitations of current equivalency regimes (which are only available for certain areas of EU regulation and can be withdrawn by EU authorities) would lead to firms relocating substantial amounts of activity from the UK to the EU."
President of the European Council Donald Tusk hammered that point home in a press conference yesterday, in which he said: “We should all be clear that, also when it comes to financial services, life will be different after Brexit.”
Tusk explained: "Services are not about tariffs. Services are about common rules, common supervision and common enforcement, to ensure a level playing field, to ensure the integrity of the single market and ultimately also to ensure financial stability. This is why we cannot offer the same in services as we can offer in goods. It’s also why FTAs don’t have detailed rules for financial services.”
The government's analysis was published after it was partially leaked to Buzzfeed, revealing all regions would experience a hit to growth after Brexit.
The analysis was dismissed by Brexit supporters for failing to include the government's preferred outcome in it list of post-brexit scenarios, and has recently been subjected to criticism by a group of leading academics.
A paper published last weekend by the Centre for Business Research, Judge Business School and University of Cambridge predicted Brexit would “only have a small negative impact on economic growth over the coming years” and a minor impact on living standards.
The paper – which examines the predictions of a range of official and academic reports on the economic impact of Brexit issued during and after the referendum – concludes that most of these, and especially the Treasury reports, were “flawed”.
Committee chair Hilary Benn MP said: "The results of this analysis, undertaken by the Government with the aim of quantifying the potential impact of leaving the EU on the British economy, are already largely in the public domain in one form or another. Allowing this information to be considered in its full context, rather than selectively quoted, will help properly to inform public debate about how the figures were arrived at and what the economic effects of Brexit might be.
“The analysis suggests that there will be an adverse effect on the economy of the UK and all its regions, and that the degree of impact will depend on the outcome achieved in the negotiations. Last week the Prime Minister said that as a result of Brexit “our access to each other’s markets will be less than it is now.”
“The Committee asked the Secretary of State whether there was any specific material that he would prefer the Committee not to publish on the grounds that it was commercially, market or negotiation-sensitive. Having considered both the Department’s response and the significant public interest in the impact of Brexit on the British economy, the Committee has decided to publish the EU Exit Analysis, with a single annex removed on the grounds of negotiation sensitivity.”
The document was published after government analysis was leaked to Buzzfeed, suggesting all regions would experience a hit to growth after Brexit.