The UK’s tax revenue isn’t £40 billion less than it used to be ‘because of Brexit’

An article published in The Guardian this week claimed that “there has been an annual £40bn tax drop because of Brexit”.

The article was corrected after Full Fact got in touch to point out that this figure is based on a counterfactual estimate of the extra amount of tax revenue that might have been generated annually had the UK not voted to leave the EU.

The actual amount of tax revenue raised by His Majesty’s Revenue and Customs (HMRC) has increased, both since the UK formally left the EU in January 2021, and since the EU Referendum in June 2016.

Counterfactual Analysis

The Guardian article cites analysis published in December 2022 by the Centre for European Reform (CER) think tank estimating the impact of Brexit on the UK’s economy.

This analysis uses a counterfactual model of how the UK might have performed had it not voted to leave the EU, based on countries whose economic performance closely matched the UK’s prior to the EU referendum. The analysis compares the UK’s actual performance since the EU referendum in 2016 with that of the counterfactual model, rather than since the UK formally left the EU in January 2021.

It estimates that if the UK economy had grown in line with this counterfactual model, tax revenues would have been around £40 billion higher on an annual basis.

In this counterfactual scenario, the CER’s model estimates that the UK’s GDP would have been approximately 5% higher (at £2.38 trillion) in the year to June 2022 than it actually was (the CER analysis uses a figure for the UK’s actual GDP of £2.26 trillion, based on OECD data which has since been revised downwards.)

That represents an annualised shortfall in GDP of £120 billion.

The analysis then applied the UK’s tax-to-GDP ratio—estimated by the OECD to be around 34% in 2021—to the counterfactual GDP estimate, giving an estimated revenue of £809 billion in the year to June 2022—approximately £40 billion more than the UK’s actual estimated tax revenue over the same period (around £770 billion).

This analysis is among a range of models which have attempted to estimate the potential impact of Brexit on the UK economy, many of which offer varying conclusions.

Crucially, this is not the same as saying that the UK’s tax revenue has *actually* fallen by this much since the EU referendum. This was not made clear in the Guardian’s article.

Inaccurate use of statistics without appropriate context can damage public trust in both the statistics and intermediaries like national newspapers. Caveats and context should always be included when claims are made, and oversights rectified when they occur. We’re grateful to The Guardian for correcting the article.

The UK’s tax revenue has increased since Brexit

In actual fact, the UK’s tax revenue has increased since the EU referendum.

In the 2015/16 financial year—the last full tax year before the referendum—HMRC’s total tax revenues were £536.8 billion.

By comparison, in the most recent financial year, total tax revenues were £731.1 billion.

UK tax revenues in 2022/23 were also higher than 2019/20—the last full tax year before the UK formally left the EU—and 2020/21.

Image courtesy of Sarah Agnew