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If the U.K. opts to cut all its trade ties with the European Union and go for a "hard" Brexit, it could cost the government £66 billion ($81.1 billion) a year, according to a leaked government paper reported by The Times newspaper.
U.K. government ministers have been warned that a "hard Brexit" – in which the U.K. leaves the EU's lucrative single market and instead reverts to World Trade Organization (WTO) rules – could prompt the U.K.'s gross domestic product (GDP) to fall dramatically, the newspaper said.
"The Treasury estimates that U.K. GDP would be between 5.4 percent and 9.5 percent of GDP lower after 15 years if we left the EU with no successor arrangement, with a central estimate of 7.5 per cent," the leaked document noted.
What's more, a hard Brexit would have a massive impact on government revenue.
"The net impact on public sector receipts - assuming no contributions to the EU and current receipts from the EU are replicated in full - would be a loss of between £38 billion and £66 billion per year after 15 years, driven by the smaller size of the economy," the leaked document said.
Such a steep drop in revenue would force ministers to slash public spending or raise taxes, The Times said on Tuesday, having seen a draft cabinet committee paper on the potential economic impact of the U.K's decision in a referendum to leave the EU.
The leaked paper used the same analysis as the U.K. Treasury (in favor or remaining in the EU) used during the referendum campaign and, as such, Brexit campaigners have said the economic presumptions are flawed.
The report comes as tensions rise between U.K. politicians over what stance the U.K. should take with its EU counterparts when it comes to negotiating a post-Brexit relationship.
The U.K. has yet to formally trigger Article 50, which sets in motion the exit negotiations, but ministers in charge of the process who are close to Prime Minister Theresa May have signalled they will take a "harder" stance during talks despite the potential loss of vital trade with the EU or possible import tariffs.
Fears over a "hard Brexit" have prompted the pound to slump dramatically in the last week but pro-Brexit politicians are confident that the U.K. does not need to make concessions during talks with the EU that could begin next April or May.
On Monday, Brexit Minister David Davis said that the U.K. could still be "incredibly successful" outside the single market and rebuffed calls from other members of parliament of all parties asking for a vote on the terms of Brexit negotiations.
On Tuesday, however, various British media reported a government spokesman as saying that the government wanted "the best outcome for Britain."
"That means pursuing a bespoke arrangement which gives British companies the maximum freedom to trade with and operate in the single market, and enables us to decide for ourselves how we control immigration," the spokesman was quoted as saying.
To read more of the original story on The Times, click here.