George Osborne is warning that Britain would face a year-long “DIY recession” following a vote to leave the European Union, as he raises the stakes in the referendum battle on Monday with one month until polling day.
The chancellor and David Cameron will present a Treasury analysis into the short-term economic impact of Brexit, which claims GDP will be 3.6% lower after two years than it would be if Britain votes to remain.
It also warns of a sharp rise in inflation, with house price growth hit by 10%, as it compares the expected uncertainty to that experienced in the early 1990s recession.
But in a sign of the increasingly bitter battle over Britain’s future in Europe, the report has already been branded dishonest and “deeply biased” by the Tory MP and former work and pensions secretary Iain Duncan Smith. The scale of the warning is likely to deepen anger among leave campaigners, and intensify “blue on blue” criticism within the Conservative party.
Speaking at a business on the south coast, Osborne will point out that the Treasury is echoing warnings from the Bank of England and IMF, and say that it has been only eight years since Britain entered the deepest recession since the second world war.
“Every part of our country suffered. The British people have worked so hard to get our country back on track. Do we want to throw it all away?
“With exactly one month to go to the referendum, the British people must ask themselves this question: can we knowingly vote for a recession? Does Britain really want this DIY recession? Because that’s what the evidence shows we’ll get if we vote to leave the EU,” Osborne will say.
Cameron admitted on Sunday that he believed the Europe vote had higher stakes than trying to win a general election as a Conservative leader.
Asked whether he would rather Britain remain in the EU under a Labour government, the prime minister said he wanted the best of both worlds.
But, speaking to ITV’s Robert Peston, he added: “What is a more important decision – a general election or this Europe vote? Actually the Europe vote is more important because if you don’t like the government, you can always get rid of them in five years’ time.
“Whereas if we make this decision to leave the EU, and get out of the single market and hit our economy and hit jobs it would be very, very difficult if not impossible to reverse that decision.”
He praised the chancellor, arguing that politics was all about partnerships. Responding to a question on whether Osborne should be a future Tory leader, Cameron said: “We have been working together for the last 11 years. I think he is a man of great talent. I am not going to pick my successor. The Conservative party will do that. But George is hugely talented, a brilliant chancellor of the exchequer.”
The Treasury’s longer-term study into the impact of Brexit claimed GDP would be £4,300 lower per household within 15 years.
The new study makes a “central estimate” of the more immediate impact if Britain negotiates a bilateral agreement with the EU within two years.
But it also includes a “severe shock” scenario in which the UK fails to negotiate a deal and instead defaults to membership of the World Trade Organisation, which carries higher trade tariffs. “After two years, GDP would be 6% lower and there would be a further increase in inflation, with a hit to house price growth of 18%,” the report concludes.
It claims Britain would be hit by a “transition effect” from becoming less open to trade and from uncertainty and financial volatility.
At the weekend Cameron and Labour’s Harriet Harman took the unusual step of teaming up to campaign at a west London Asda, claiming that Brexit could push up the cost of family shopping by £220 a year as a result of a fall in sterling.
Andy Clarke, Asda’s chief executive and president, agreed that there would be uncertainty for prices, which he said was why the supermarket was calling for a vote to remain.
Vote Leave campaigners hit back at the Treasury report, describing its worst case estimate as “fantastical”, given that it painted an even more pessimistic picture than under the Great Depression. They said the Treasury failed to predict the last recession, and claims of a run on the pound were ridiculous.
Duncan Smith said: “As George Osborne has himself admitted, the reason he created the independent forecaster, the OBR, was because by 2010 the public simply did not believe the government’s own economic forecasts. The Treasury has consistently got its predictions wrong in the past. This Treasury document is not an honest assessment but a deeply biased view of the future and it should not be believed by anyone.”
Shirley Williams, the Liberal Democrat peer, is set to enter the referendum debate with a speech in which she will argue that much more needs to be done to mobilise Labour voters who could be put off by the Tory infighting.
She told the Guardian that the tone of the debate so far had been appalling, particularly citing a claim by the Tory MP Boris Johnson that Cameron’s argument had been demented. “What example are they setting?” she asked.
It came as a key former adviser to Cameron, who was seen as the brainchild of his modern Conservatism agenda, said he now supported Brexit. Writing in the Daily Mail, Steve Hilton admitted that leaving the EU was risky but said it was the “ideal and idealistic choice” for wrestling back power from “arrogant, unaccountable hubristic elites”.