Wednesday 19 October 2016 9:04 am

Leaked government documents reveal £75bn cost of hard Brexit

Theresa May has come under fire for regurgitating pre-referendum economic warnings to claim leaving the EU Customs Union would cost the UK £75bn and inflict travel chaos across the country.

According to The Guardian, the Prime Minister has circulated papers to top cabinet colleagues on her Brexit planning committee outlining the potential mutli-billion pound cost of a hard Brexit, as the divisions among her inner circle continue to rumble.

Chancellor Philip Hammond, who has come under attack this week by unnamed senior figures for attempting to "undermine Brexit", was forced to deny speculation he has threatened to quit yesterday. Separately, leading City figures told City A.M. the government's new departments for international trade and exiting the EU are not listening to the needs of London's financial sector.

The calculations, sent to May's close-knit team of Brexit advisers, which includes Hammond, David Davis, Liam Fox and Boris Johnson, claim the UK economy would be 4.5 per cent smaller by 2030 if it leaves the Customs Union as part of any Brexit deal. Such a hit would leave the UK £75bn worse off.

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However, the claims which are arrived at by taking the average assessment obtained from the controversial work undertaken by the Treasury before the vote, along with pre-23 June studies from the National Institute of Economic and Social Research (Niesr) and the London School of Economics (LSE), were dismissed by several experts.

"The idea that leaving a customs union will cost 4.5 per cent of GDP is farcical," Ryan Bourne, head of public policy at the Institute of Economic Affairs told City A.M.

"Any short-term costs would be vastly outweighed by the ability to extricate ourselves from the customs union’s Common External Tariff – a protectionist wall which currently raises prices for consumers of manufactured and agricultural goods by around 20 per cent."

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Shanker Singham, director of economic policy at the Legatum Institute said: "The estimate assumes the worst. This would be the cost of tariff increases as we leave the customs union and some extra admin, but [the figure] assumes that we don’t succeed in negotiating anything more with other countries in the form of other free trade agreements."

The analysis on the costs of leaving the Customs Union also argued the UK's infrastructure networks could not handle the additional administrative pressures needed to set up a new fully-fledged border between the UK and the EU. 

Sam Bowman, executive director at the Adam Smith Institute also questioned the figures: "The pre-referendum Treasury analysis suggested full exit from the Single Market would cost us around six per cent of GDP so it's quite astonishing if two-thirds of that comes from customs checks and rules of origin.

"It's perfectly reasonable to use pre-referendum estimates to calculate the cost of Brexit, although one important factor doesn't seem to have been factored into those, which is Bank of England monetary easing."