LONDON: Quitting the European Union (EU) would be a “tax” on the U.K. economy, the Organisation for Economic Co-operation and Development (OECD) warned on Wednesday.
“A U.K. exit (Brexit) would be a major negative shock to the U.K. economy, with an economic fallout in the rest of the OECD, particularly other European countries,” the body, which represents 34 major international economies, said in a report published Wednesday.
“In some respects, Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the U.K.,” it added.
Unveiling the report in London, OECD Secretary-General Angel Gurria told reporters that “the responsibility borne by British voters is very serious indeed. It will be an act of intergenerational responsibility.”
“The Brexit tax would be a pure deadweight loss. a cost incurred with no economic benefit and this tax would not be a one-off levy. Britons would be paying it for many years,” he added.
U.K. citizens will vote on June 23 on whether the country should remain a member of the 28-country EU or quit in a so-called Brexit.
The vote is set to be a close one with both the Bank of England and the U.K. Treasury warning of the potential economic cost of leaving the union.
“All the numbers under a Brexit scenario are negative,” Gurria said on Wednesday. “The best outcomes under a Brexit are worse than remaining and the worst outcomes are very bad indeed.”
Even U.S. President Barack Obama has stepped in, telling a joint press conference with Prime Minister David Cameron last weekend that negotiating a new U.K.-U.S. trade deal might take as long as a decade if the U.K. left the EU.
Gurria warned that any hopes that Britain would be in a strong position to renegotiate a trade deal with the EU was a “delusion.”
“The U.K. would be starting from scratch,” he told reporters Wednesday.
“You would be facing an embittered, freshly rejected much larger trading partner with a very clear incentive to make Brexit costly just in case somebody was thinking of following … the same path.”
Last week, the U.K. Treasury forecast U.K. households would be up to £5,200 worse off per year by 2030 in a Brexit.
The OECD on Wednesday was a little less bearish, forecasting a £3,200 hit to households. It said U.K. GDP would be more than 3 percent smaller by 2020 than if the country remained in the EU and more than 5 percent lower by 2030.
“Brexit would also hold back GDP in other European economies, particularly in the near-term, resulting from (the) heightened uncertainty (it) would create about the future of Europe,” the report added.
One major catalyst for the referendum was U.K. citizens’ fears that high immigration was fueled by the right to free movement of people throughout the EU, which is entrenched in European law.
There are therefore concerns a Brexit vote might hit migration and the economic benefits it brings.
On Wednesday, the OECD said immigration had accounted for one-half of U.K. GDP growth since 2005, resulting in a stronger labor force growth and helping ameliorate the challenge of an ageing population.
It forecast a net inward annual decline of 84,000 people between 2019 and 2023 in a Brexit scenario.
Earlier on Wednesday, the U.K.’s National Institute of Economic and Social Research (NIESR) reported Brexit would have “significant and damaging” effects on British companies by restricting their ability to employ migrants.
NIESR said employers found it difficult to attract British workers to low-skilled jobs, while non-EU migrants were often overqualified and recruiting them was costly and time-consuming because they needed visas.
Uncertainty about the outcome of the referendum has already hit U.K. growth, the OECD said. First quarter GDP growth was reported at 0.4 percent on Wednesday, down from 0.6 percent in the last three months of 2015, quarter-on-quarter.
According to the OECD, U.K. GDP per capita — a measure of economic growth that divides GDP per the number of people in a country — has doubled since the country joined the EU in 1973. It said U.K. growth over the period beat that of any non-EU English-speaking country, including the U.S.
“Domestic policies partly explain this strong performance, but geographic proximity and unrestricted access to the largest market in the world are undeniably important factors as well,” the report concluded.
