There are, however, a number of sensitivities around this central forecast.
Firstly, these savings could easily be eradicated if Brexit had an adverse impact on the economy, even if it was quite a small one. The Office for Budget Responsibility’s rule of thumb suggests that it would only take a 0.8% permanent reduction in the level of output for public borrowing to be £10bn higher than it would otherwise be.33 Equally, though, if Brexit boosted the economy, the savings would be even bigger.
Secondly, the United Kingdom might still need to contribute to the European Union’s budget. To be in the European Economic Area, Norway pays a contribution based on the size of its economy. Estimates of how much Britain would pay for a Norway-style arrangement vary but it is reckoned that contributions would be at least 56% of current levels34 and may only fall by 17%.35
Thirdly, if the United Kingdom left the European Economic Area, it might need to compensate exporters if no free trade agreement were reached and the European Union imposed its Common External Tariff. The government may also find itself in a position where it needs to compensate businesses for a loss of access to European Union structural funds, such as the European Regional Development Fund. These would be small amounts; in Wales, for example, structural funds will disburse the equivalent of almost 0.5% of annual gross value added between 2014 and 2020.36 (See Figure 26.)
Fourthly, the potential for Britain to receive the revenues currently lost to the European Union in customs duties will be reduced if the United Kingdom is successful in negotiating low or zero duty arrangements with other countries via new free trade agreements. Of course, it could be expected that such deals will yield net benefits for the economy, but it should be noted that they will come at a cost to the public finances.
Finally, the public finances could be further affected if Brexit resulted in lower net migration. Estimates vary but one study showed that European immigrants who arrived in Britain since 2000 made net contributions to the public finances of more than £20bn between 2001 and 2011.37 The Office for Budget Responsibility estimates that, in a low net migration scenario (of 105,000 annually), the ratio of debt to GDP will be 20% higher in 50 years’ time than if migration were 165,000 a year.38