"Single market membership also comes at the cost of accepting future regulations designed in the EU without UK input. This may be seriously problematic for some parts of the financial services sector."
The IFS says that ‘passporting rights’, which allow UK-based financial firms to service EU businesses and customers directly, "would likely require membership of the European Economic Area".
However this "would come at the potentially considerable cost of submitting to future regulations designed in the EU without input from the UK", according to the report.
The Institute believes the UK may "have to make some very difficult choices between the benefits from passporting and the costs of submitting to external imposed regulation".
Additionally, the IFS estimates that single market membership could be worth 4% on GDP relative to reliance on WTO terms. It believes that free trade agreements short of single market membership would have economic effects intermediate between these options.
It also states that new trade deals are unlikely to compensate fully for EU trade, which currently accounts for 44% of UK exports and 39% of service exports, adding that "even small proportionate losses in trade with the EU would require quite dramatic – and probably implausible – increases in trade" with other countries.
Ian Mitchell, Research Associate at the IFS, said: “From an economic point of view we still face some very big choices indeed in terms of our future relationship with the EU. There is all the difference in the world between ‘access to’ and ‘membership of’ the single market.
"Membership is likely to offer significant economic benefits particularly for trade in services. But outside the EU, single market membership also comes at the cost of accepting future regulations designed in the EU without UK input. This may be seriously problematic for some parts of the financial services sector. Choices in these domains will most likely be far more important than any deal on budget contributions.”
