Remaining in the EU means £50 billion more for the government to spend by 2024/25.
This is a fair assessment of the best available forecasts, comparing Remain to a Brexit deal scenario. But those forecasts themselves contain a high degree of uncertainty, so we shouldn’t treat £50 billion as definitive.
“We know that that remain bonus will be £50 billion that we can spend on our public services, investing in our schools and in the welfare system to help poorest in our society”.
Jo Swinson, 5 November 2018
Yesterday saw a lot of press coverage of a claim by the Liberal Democrats that remaining in the EU would mean UK GDP was 1.9% larger by 2024/25, and that this would generate a “remain bonus” of £50 billion for the government to spend.
The “remain bonus” was also mentioned by Jo Swinson in the Lib Dems’ campaign launch speech.
We’ve checked the Lib Dems’ calculations and they seem a reasonable assessment of the best available forecasts we have on how the economy could be affected by different Brexit scenarios.
That said, the numbers still come with a health warning. Experts, whose research the Lib Dems used, emphasise that projections like this are subject to a large degree of uncertainty.
It’s far too early to categorically say—as Jo Swinson did—that “we know that that remain bonus will be £50 billion that we can spend on public services”.
What have the Lib Dems done?
The Liberal Democrats shared their calculations with us. They produced estimates of how much UK GDP would grow by over five years in a Brexit deal scenario, and in a scenario where we remained in the EU. This was based largely on analysis from the independent think tank Institute for Fiscal Studies (IFS) and Citi Bank.
The Lib Dems found that, based on their calculations, GDP would be 1.9% higher in a Remain scenario than under a Brexit scenario.
They then calculated how much higher GDP growth under Remain might translate into extra income for the government (known as public sector receipts)—through things like more revenue from taxes. GDP is the value of all goods and services produced in a country; it’s expected to grow in both the Remain and Brexit deal scenarios, but by more in the former.
The Lib Dems have looked at what public sector receipts are expected to be, as a percentage of GDP, over the next few years, to estimate how much more the UK government would have in its account each year in the Remain scenario—where GDP is higher overall—than in the Brexit deal scenario. This works out at just over £50 billion over the next five years or—on average—£10 billion each year.
While this doesn’t seem to have factored in inflation, even when you do it still works out at around £50 billion. The Lib Dems also said that their calculations factored in the fact that in a Remain scenario the UK would have to continue paying its EU membership fee.
The Lib Dems argue that this additional money could be put into public spending. For context, total UK public spending is expected to be £824 billion in 2019/20, so this hypothetical “remain bonus” is a relatively small in comparison.
These are reasonable estimates, but also very uncertain ones
Paul Johnson, Director of the IFS, said of the Lib Dems’ calculation: "We could expect the economy to be bigger if we were to remain and this assumes a relatively modest effect if anything, although obviously subject to a huge amount of uncertainty".
The uncertainty point is important. GDP growth can be affected by a number of factors both global and domestic.
The IFS and Citi call their growth estimates “potential paths for the UK economy” and point out that things like different election outcomes could change those paths. The IFS told us that if, for example, a decision to remain in the EU was followed by intense political pressure to leave or have another referendum, this could create more economic uncertainty and affect GDP.
So the Lib Dems’ £50 billion figure is a reasonable indication of what additional money a government might have to spend over the next five years, if we remain in the EU compared to if we leave with a deal.
However, it’s important to remember that the calculation is based on projections of GDP growth which themselves are highly uncertain, and so it’s far from definitive.