Philip Hammond to be pressed on risks of UK leaving EU customs union

Chancellor to appear before Treasury select committee after Whitehall estimates show economy could shrink by 4.5%

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Labour MPs are to press the chancellor on the risks of Britain leaving the EU customs union, after the Guardian revealed Whitehall estimates showing it could knock 4.5% off GDP.

Philip Hammond, who sees it as part of his role to warn his cabinet colleagues about the risks of Brexit, is to appear before the cross-party Treasury select committee on Wednesday afternoon.

Labour MP Helen Goodman, who sits on the committee, said: “It’s very important that the government has a clear-sighted analysis of the benefits of the customs union, as opposed to treaties with third countries, before deciding on its negotiating strategy. I hope the chancellor will be able to share his thinking with us.”

Related: Theresa May given stark warning about leaving customs union

Trade flows and foreign investment would also be hit hard by leaving the customs union, according to figures calculated for the Guardian on the same basis as those prepared by civil servants for the government’s Brexit committee.

The pro-EU thinktank Open Britain used the same studies – by the National Institute for Economic and Social Research, the Treasury and the London School of Economics – to suggest trade could decline by almost 12% and foreign investment by 10%, or more than £4bn, if Britain left the customs union.

Foreign investment tends to improve productivity – a key target for government policy – so a decline alarms economists. Ministers were also warned at the Brexit committee that if leaving the customs union meant enhanced border checks, it could clog up Britain’s ports.

Many Brexiters assume leaving the customs union is an inevitable result of leaving the EU. But the paper, which the Guardian understands was prepared jointly by the Treasury, International Trade and Brexit departments, points out that it would have significant economic costs, even if Britain pursued a Norway-style agreement which would allow it to stay in the European Economic Area.

Joe Carberry, of Open Britain, said: “The government’s own figures show that even under the best case scenario there would be a hit to GDP, trade and investment.”

He added: “If pre-referendum analysis is going to be dismissed, post-referendum analysis should be conducted and published for scrutiny.”

Labour also questioned the suggestion made at the Brexirt committee meeting by the secretary for international trade, Liam Fox: that third countries might be willing to continue trading with Britain on existing terms, while new deals were being drawn up.

Barry Gardiner, the shadow international trade secretary, said: “Policy decisions cannot be based upon private ‘gentleman’s agreements’ made off the record by foreign politicians who may or may not still be in office when we need to call them in.

“People need to know their jobs are being protected and businesses need clarity about the basis of future trade. This government is offering neither.”

The paper on the customs union warned ministers that to stand still in trade terms after a withdrawal from the bloc, the UK would need to grow trade with its 10 largest partners outside the EU by 37% by 2030.

Fergus McReynolds, EU director of manufacturers’ group the EEF, said: “Whilst the UK is a member of the customs union, manufacturers in the UK have traded with EU partners without experiencing the delays and burden of comprehensive customs controls. In considering the UK future relationship with the EU, the potentially damaging cost implications of delays at these cross-border controls and additional administrative burdens must be fully considered.”