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Boris Johnson’s Brexit deal is worse for the UK economy than Theresa May’s, research suggests

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Via CNBC

U.K. Prime Minister Boris Johnson’s new Brexit deal would have a worse impact on the British economy than the Withdrawal Agreement negotiated by his predecessor Theresa May, according to a recent independent study and past government figures.

British lawmakers will vote on the revised deal on Saturday, after it secured unanimous support from European leaders this week. The U.K. is scheduled to leave the EU on October 31.

The British Parliament’s cross-party Treasury Committee on Friday wrote to Finance Minister Sajid Javid urging him to publish updated economic forecasts in the event that Johnson’s deal passes on Saturday.

“It is unacceptable that the Committee has not received this information from HM Treasury. It appears to be an attempt to avoid scrutiny,” the committee’s acting chair and opposition Labour lawmaker, Catherine McKinnell, wrote in the letter.

Javid told reporters at the IMF Annual Meeting in Washington, D.C., on Thursday that he had no intention of publishing revised figures on the impact of Johnson’s deal.

However, as British newspaper The Guardian reported Thursday, the government’s long-term economic analysis published in November 2018 identifies a potential scenario akin to Johnson’s as costing the U.K. 6.7% of its GDP, or £130 billion ($167.5 billion) in growth by 2034. This amounts to people on average being £2,250 per year poorer 15 years from now.

The same figures from the government’s Department for Exiting the European Union (DExEU) suggested that Theresa May’s deal would have cut 2.1% of the U.K.’s total national income over the same period.

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A U.K. government spokesperson told CNBC Friday via email that the government would “negotiate a comprehensive and ambitious FTA with the EU, which will be good for our economy and businesses.”

The Treasury spokesman added that negotiations had so far focussed on Withdrawal Agreement rather than future trade Arrangements, adding, “We will keep Parliament updated throughout the negotiations, including providing analysis at appropriate times.”

“This stage of the negotiations has focussed on the Withdrawal Agreement rather than the future trade deal, the specific nature of which will be subject to the outcome of the next phase of negotiation. We will keep Parliament updated throughout the negotiations, including providing analysis at appropriate times.”

Somewhere between May and WTO

A recent study by independent research group The U.K. in a Changing Europe found that Johnson’s proposed deal would reduce per capita GDP (gross domestic product) by 6.4%, greater than the 4.9% estimated under Theresa May’s deal but not as damaging as the 8.1% lost if the U.K. was to leave without a deal to trade on WTO terms.

Johnson’s proposal is projected to reduce U.K. GDP per capita over 10 years by between 2.3% and 7% ranging from best to worst case scenario, compared to remaining in the EU. The range of loss arising from May’s deal was estimated at between 1.9% to 5.5%, while leaving without a deal would have shaved GDP by between 3.5% and 8.7% over the same period.

The revised deal would see Northern Ireland become part of the U.K. customs territory rather than the EU customs area, but will still have to abide by certain EU rules, including on agricultural and goods.

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The main source of the economic variation between May’s deal and Johnson’s, the researchers suggested, was that Great Britain will have no customs union with the EU, no “level playing field” arrangements and a more limited, if any, free trade agreement.

The study accounts for the proposal’s trade, migration, productivity and ultimate fiscal impacts. The researchers, led by King’s College London Professor of European Politics and Foreign Affairs, Anand Menon, clarified that the report does not look at the U.K. economy as a whole, but rather the isolated impact of a change to the U.K.’s relationship with the EU.

“Our findings suggest that the economic impact of Mr. Johnson’s proposals are substantially negative relative to the status quo of EU membership. We modelled four scenarios based on hypothetical liberal and restrictive migration policies, and with and without a productivity adjustment,” Menon wrote.

The most optimistic scenario, which assumes no effect on productivity and a “relatively liberal” approach to migration, projects that income per capita would fall by 2.3% in the long term, while a more restrictive EU migration policy would increase the figure to 2.7%.

“The forecasts give an indication of the scale of the impact of Mr. Johnson’s proposals. Our main insight is that his proposals sit somewhere in between Mrs. May’s deal and a WTO scenario in terms of negative economic impact. The impact on income per capita is negative in all scenarios, but Mr. Johnson’s proposals would be more damaging than Mrs. May’s deal,” the report concluded.

CNBC has contacted the U.K. Treasury for comment.

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