A “no deal” outcome from the Brexit negotiations would lead to a £500 billion loss for the European Union, according to a new analysis.
A study by Patrick Minford, a professor of economics at Cardiff University, states that while a failure to reach a deal would lead to “short term nuisance” for both sides, Brussels would face a “substantial economic loss”, compared to a net gain for the UK.
Prof Minford, who chairs the Eurosceptic Economists for Free Trade group, concludes: “It could not be more open and shut who least wants a breakdown”.
The analysis comes after David Davis, the Brexit Secretary, complained in a letter to the Prime Minister that Brussels was damaging British interests by talking up the threat to companies if the UK leaves the European Union without a deal.
Prof Minford said: “For the UK a breakdown would be a short term nuisance but a substantial economic gain; for the EU it is both a short term nuisance and a substantial economic loss.”
According to the analysis, the largest cost to the EU would be from paying the UK some £433 billion in tariff revenue. It would also lose around £28 billion which the UK would otherwise pay into the budget period to 2020, and a reported £10 billion contribution to longer term liabilities, as part of a financial settlement, Prof Minford concluded.
“Because its customs union with the UK would stop immediately, it would lose two years’ worth of the terms of trade gain its producers make on its balance of trade surplus with the UK- estimated at around £18 billion a year: so two years’ worth of that would be another £36 billion one-off loss,” he added.
By contrast, a breakdown in talks would lead to a “one-off gain” of £38 billion on savings in relation to the EU budget, in addition a £180 billion windfall as a result of bringing forward the “long-term gain” of “free trade, own-regulation and own-border-control” in the absence of the otherwise expected two-year implementation period for a deal.
The UK would also gain the total of £433 billion tariff revenue which Prof Minford calculated would be paid by the EU to the Treasury, he said.
He concluded: “So plus £641 billion for the UK versus minus £507 billion for the EU: it could not be more open and shut who least wants a breakdown. For the UK a breakdown would be a short term nuisance but a substantial economic gain; for the EU it is both a short term nuisance and a substantial economic loss.”