If the United Kingdom votes to leave the European Union in the referendum on June 23, it will necessarily have to extend its austerity measures by two years. According to the UK-based Institute of Fiscal Studies, an economic think-tank, a vote for Brexit will add billions of dollars of debt to the government&’s books and thus force it to extend the ongoing austerity. Although the IFS has the reputation of being a persistent critic of Conservative governments, its recent warning favours staying in the European Union. According to IFS estimates, instead of going back to a revenue surplus in 2019-20 as planned by the exchequer, the government may have to face a gargantuan budget deficit of about $44 billion if the British decide to leave the EU. In the words of the IFS, “getting to budget balance from there, as the government desires, would require an additional year or two of austerity at current rates of spending cuts”. The warning from IFS comes just two days after the UK treasury warned that a vote to leave the EU would be disastrous as it would result in recession in the British economy and may push the exchequer&’s borrowing up by $57 billion in the next two years.
British Prime Minister David Cameron wants the UK to remain in the EU, although his cabinet is divided on whether it would be politically and economically advantageous for the UK to do so. Commenting on the recent warnings, Cameron has said that “what they’re saying about the effect on our economy of Brexit, that&’s very very powerful, it backs what the Treasury and others have been saying”. One Conservative party member in favour of Brexit though was caustic and went to the extent of questioning the credibility of the IFS. He said, “the IFS are part of this cosy establishment which desperately wants to keep us in the European Union”. This signifies the divide in Britain over the crucial vote due next month. UK joined the European Union aiming to have a large economic and strategic role in Europe. If it leaves EU, not only will this have repercussions for the British economy but will also undermine the country&’s influence in European affairs. This is an outcome that the British would not want, keeping in mind recent developments concerning the financial crisis, influx of refugees from Syria and rising protectionism in the eurozone. UK has an opportunity to recalibrate its position vis-à-vis Europe.