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Theresa May Brexit Speech: The charts that shows how much it will hurt economically Theresa May Brexit Speech: The charts that show how much it will hurt economically
(about 2 hours later)
How much will it hurt?How much will it hurt?
That’s the question that many are asking in the wake of Theresa May’s speech at Lancaster House, in which she revealed that the UK will pull out of the single market and seek to conclude a free trade deal with the European Union.That’s the question that many are asking in the wake of Theresa May’s speech at Lancaster House, in which she revealed that the UK will pull out of the single market and seek to conclude a free trade deal with the European Union.
There can be no specific answer because we don’t know what type of free trade deal (if any) will be agreed by the UK and the EU.There can be no specific answer because we don’t know what type of free trade deal (if any) will be agreed by the UK and the EU.
But we can provide some useful context for thinking about the potential cost and also by looking at the results of previous economic modelling.But we can provide some useful context for thinking about the potential cost and also by looking at the results of previous economic modelling.
The main benefit of the single market – relative to a free trade agreement – is that the single market primarily benefits our services firms.The main benefit of the single market – relative to a free trade agreement – is that the single market primarily benefits our services firms.
This is because the single market removes non-tariff barriers, which are a particular impediment to services exporters.This is because the single market removes non-tariff barriers, which are a particular impediment to services exporters.
This particularly matters for Britain since services are 80 per cent of our GDP and 44 per cent of our exports.This particularly matters for Britain since services are 80 per cent of our GDP and 44 per cent of our exports.
That services export share is up from around 27 per cent at the turn of the Millennium and still rising fast. That services export share is up from around 30 per cent at the turn of the Millennium and still rising fast.
And Europe is a major destination for those exports.And Europe is a major destination for those exports.
The EU accounts for 40 per cent of UK services exports, worth around £89bn in 2015.The EU accounts for 40 per cent of UK services exports, worth around £89bn in 2015.
The emerging economies of Brazil, Russia, India, and China  account for less than 5 per cent combined.The emerging economies of Brazil, Russia, India, and China  account for less than 5 per cent combined.
This is important because any free trade deal we do with those countries is a) unlikely to cover services b) even if it did would not compensate for the loss of services exports to the EU. This is important because any free trade deal we do with those countries is a) unlikely to cover services b) even if it did would not compensate for the loss of services exports to the EU. 
We could lose other benefits from leaving the single market.We could lose other benefits from leaving the single market.
The EU single market's free trade deals cover 8.6 per cent of global GDP. And the European Free Trade Area free trade deals cover 13.1 per cent of global GDPThe EU single market's free trade deals cover 8.6 per cent of global GDP. And the European Free Trade Area free trade deals cover 13.1 per cent of global GDP
We could have joined the latter if we'd sought to join the European Economic Area in 2019, like Norway.We could have joined the latter if we'd sought to join the European Economic Area in 2019, like Norway.
But Ms May ruled that out today. But Ms May ruled that out today. 
So we will be saying goodbye to these existing trade deals - although no doubt we will try to replicate many of them in the next two years.So we will be saying goodbye to these existing trade deals - although no doubt we will try to replicate many of them in the next two years.
There is huge uncertainty about all this but various economic forecasting teams modelled the impact of a UK free trade agreement relative to staying in the single market before the referendum. There is huge uncertainty about all this but various credible forecasting teams modelled the impact of a UK free trade agreement relative to staying in the single market before the referendum based on historic trade patterns and well-established economic theory.
The Treasury's estimate of the cost was something of an outlier at 6.2 per cent of GDP by 2030  - but the rest were all negative and pointed to at least 1 per cent of output lost.The Treasury's estimate of the cost was something of an outlier at 6.2 per cent of GDP by 2030  - but the rest were all negative and pointed to at least 1 per cent of output lost.
This will harm the public finances This growth hit will also hurt the public finances
Before the referendum the IFS estimated the cost to the public finances of a free trade deal, based on the assumption that the Niesr (National Institute for Economic and Social Research) economic forecasts were borne out.Before the referendum the IFS estimated the cost to the public finances of a free trade deal, based on the assumption that the Niesr (National Institute for Economic and Social Research) economic forecasts were borne out.
They put the cost at £27bn to £24bn, implying at least one more years of extra austerity. They put the cost at £27bn to £24bn, implying at least one more year of extra austerity.
These calculations are out of date now given the Chancellor has ditched the goal of a 2019-20 budget surplus in the November Autumn Statement. These calculations are out of date now given the Chancellor ditched the goal of a 2019-20 budget surplus in the November Autumn Statement.
But they give a rough idea of the size of the austerity pain likely to follow the UK leaving the single market. But they give a rough idea of the size of the austerity pain - in the form of lower public spending or higher taxes on UK households - likely to follow the UK leaving the single market if the Government is to balance the state's books.