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Brexit will lead to net loss for public finances, warns UK think tank

  • Britain's decision to leave the Europe Union is likely to lead to a net fiscal loss for the U.K. government's public finances.
  • That's the view of Carl Emmerson, deputy director of the Institute for Fiscal Studies.
  • This was in response to claims by U.K. Foreign Secretary Boris Johnson that leaving the EU would free £350 million per week of spending.
Justin Tallis | AFP | Getty Images

Britain's decision to leave the Europe Union is likely to lead to a net fiscal loss for the U.K. government's public finances, according to the head of an independent research institute.

"The forecast health of the public finances was downgraded by £15 billion ($20.25 billion) per year — or almost £300 million per week — as a direct result of the Brexit vote," said Carl Emmerson, deputy director of the Institute for Fiscal Studies in a letter to The Times of London newspaper published Tuesday.

"We are likely to make a net fiscal loss from it. Those are the numbers and forecasts which the government has adopted."

Emmerson's letter was in response to an article written by U.K. Foreign Secretary Boris Johnson at the weekend, which repeated the widely discredited and false claim that leaving the EU would free £350 million of spending per week.

The £350 million claim was used extensively by the leave campaign during the 2016 referendum on membership of the European Union. However, the figure does not take into account the rebate the U.K. receives, which instantly discounts the U.K.'s membership fee to around £250 million per week.

This £250 million is further reduced by payments from the EU to U.K. agriculture and poorer regions such as Wales and Cornwall, according to the independent fact checking charity Full Fact. The EU also makes further payments to the U.K. public sector, such as research grants.

"In 2014, these were worth an estimated £1 billion, so including them could reduce our net contribution further still," the Full Fact team says on its website.

"The money we get back will be spent on things the government may or may not choose to fund if we left the EU. It's not enough to look at the net contribution in isolation because what we get back isn't fully under our control."

According to Emmerson, the U.K. government's budget forecasts are including an allowance of £250 million per week, not £350 million, from leaving the European Union.

"(This is) funding that could in principle go to the National Health Service rather than the EU. But this would involve no state support for any other activities, such as subsidies for agriculture that are at present funded in the U.K. by the EU," he said.

"It is perhaps surprising that members of the government are suggesting rather different figures."

Support for Brexit

On the other hand, the U.K.'s financial position could be very different after Brexit if the country is able to secure advantageous trade deals with the EU and other countries. Liam Halligan, author of new book "Clean Brexit", says the U.K. does not and should not need to pay to access the EU single market.

"We sell more to the EU than they sell to us. If there's any payment for access it should be in the other direction if we're being pedantic about it," he told CNBC's Squawk Box on Tuesday.

"At the outset there will be uncertainty about Brexit, of course there will, but I don't think for a minute that being outside the EU necessarily means that our growth trajectory will be lower. I actually think our growth trajectory will be higher."