As stock market plunges...
Osborne planning £30 billion Brexit budget cuts
In one of the harshest warnings yet about the implications of withdrawal, Mr Osborne says Britain would be left with a huge black hole in the public finances.
The Treasury is preparing for a £30 billion hit to the economy, saying that it will be left with no choice other than to take corrective action.
Mr Osborne will today share a platform with his predecessor Alistair Darling to outline why Britain would be forced to call an emergency budget. The Chancellor will warn of the need to:
– raise income tax by 2p in the pound
– slap 3p on the higher tax rate
– hike taxes on alcohol and petrol
“Quitting the EU would hit investment, hurt families and harm the British economy,” Mr Osborne will say.
“I would have a responsibility to try to restore stability to the public finances and that would mean an emergency budget where we would have to increase taxes and cut spending.”
Mr Darling adds: “I am even more worried now than I was in 2008. “The Leave campaign has no idea, no plan whatsoever. Any political party seeking election on such a flimsy and fraudulent prospectus would have been torn to pieces by now.”
Amid talk of more than one budget this year, Mr Osborne and Mr Darling will be accused by the Leave Campaign of stoking the fear factor.
Leave campaigners say that far from having to impose cuts Britain would benefit from quitting the EU and that the money saved would be pumped back into the economy.
Critics have also said Mr Osborne would struggle to pass his budget plans because so many Tory MPs are in the Leave camp. He might even be out of office, given that pressure will mount on him and the Prime Minister to resign if the country votes to leave the EU.
Businesses in-EU countries urge Britain to stick with EU – Stock market plunges
As the war of words intensified, the CBI said business leaders in Canada, Norway and Switzerland believe the UK is better sticking with the European Union.
The CBI says these countries are often identified by the Leave campaign as role models for a post-EU Britain to follow.
But business federations in all three – and in Albania which has applied for EU membership – outline the serious shortcomings for their firms from the alternative relationships they have with the EU.
Daily Business Comment: Has The Sun just won it for the Leave Campaign?
However, the argument is having no sway with ordinary voters, with the latest polls suggesting the Leave campaign is forging a strong lead.
The prospect of Britain leaving the EU spooked the London Stock Exchange and the FTSE100 suffered its worst day since the market crash in February. More than £30 billion was wiped from the value of the top 100 companies on the London market. The FTSE lost 121 points, or 2%, to close at 5,923 while the FTSE AIM 100 was 2.3% lower at 3,351.
As campaigning was stepped up ahead of next week’s referendum, the CBI warned that in the event of a vote to leave the EU, a lower level of access to the Single Market of 500 million people will lead to significant damage to the UK’s economy.
Carolyn Fairbairn, CBI Director-General (right), said: “The Leave campaign has said we should be like Switzerland, Norway, Canada or even perhaps Albania – but all these countries say they’d rather be like the UK. They say that their models have big drawbacks, and that we already have the best deal.
“The Single Market is one of the UK’s great success stories – we led from the front in its development – and now the Leave campaign is telling us to abandon it.
“Access to the Single Market allows ambitious firms to buy and sell easily in 27 other countries and smaller firms to be part of supply chains that span the Continent, creating jobs here at home and making the UK more prosperous.
“The Leave campaign admit that their preferred choice means withdrawing British firms’ access to the EU Single Market of 500 million people. This will put British businesses out in the cold and hit jobs.”
Mrs Kristin Skogen Lund, Director-General, Confederation of Norwegian Enterprise (NHO), said: “Norwegian businesses have access to the Single Market for goods and services which is absolutely essential to our economy, but in return we pay a significant bill with little say on the rules. We also accept the free movement of people as part of that agreement.
“While we can lead our own trade deal talks, we have less bargaining power than if we were inside the EU. It is especially damaging with the current trade negotiations between the EU and the US, where we are left out.
“There are some advantages for Norway to be outside the EU, but it’s hard to understand why the UK would choose to have no influence in its largest market.
“I would be surprised if a big and proud country like the UK could accept the Norwegian model. We take on board all legislation from Brussels and pay our fees in return for access to the Single Market.”
The Norwegian model:
Norway makes the 10th highest per person contributions into the EU budget and a recent Government report confirmed that it implemented around 75% of EU rules. The freedom of movement of people is part of the Norwegian agreement.
Monika Rühl, Director General, economiesuisse, said: “Our relationship with the EU took 16 years to agree and is made up of over 100 separate deals, so I hope that in event of a Brexit you are not pinning your hopes on getting a deal quickly.
“Our deal is a complex web in which our firms must operate. Whilst we do have some access to the Single Market, this is not comprehensive and does not include cross-border financial services. In return, we have to implement relevant EU rules, but our ability to actually influence them is severely restricted.
“As a result, Swiss banks have had to open subsidiaries in London for cross border services in the EU market for investment banking and foreign exchange trading. London as a global hub for financial services might be challenged if the City would lose its direct access to the Single Market.”
The Swiss model
Switzerland is part of the EFTA but not the EEA, managing its relationship with the EU through 17 treaties and 120 bilateral arrangements. Swiss businesses can access the single market in areas covered by a bilateral agreement but in return Switzerland has to implement the relevant EU rules. Where new rules have been introduced after the bilateral agreement, Switzerland must adjust its rules accordingly or lose access. It is overseen by bureaucratic layers of more than a dozen joint committees of Swiss and EU officials. The freedom of movement of people is part of the Swiss agreement.
The Honourable John Manley, President and Chief Executive of the Business Council of Canada, said: “The Canada-EU economic partnership is as ambitious as any trade deal ever negotiated by the European Union, but the access it provides to Canadian businesses obviously doesn’t compare to the advantages the UK enjoys by virtue of its membership in the single market. Our deal required more than five years of negotiations, and when it finally comes into force we strongly hope the UK will still be part of the EU.”
The Canadian model
This free trade deal (CETA) – when finalised – will remove many tariffs and quotas and harmonise standards in many sectors. However, under CETA, Canadian exports have to comply with EU rules, but Canada will have no power over regulators in the EU’s Member States or at EU level.