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LONDON—A British vote in favor of leaving the European Union could thwart U.K. Treasury chief George Osborne's goal of closing the nation's budget deficit by 2020, according to an analysis by a nonpartisan think tank.

The Institute for Fiscal Studies said it found that a vote to leave the EU in a referendum next month would likely slow the economy, lowering tax receipts and pushing up government spending over the next few years, according to an advance copy of the analysis.

That could cause government borrowing to be between £ 20 billion ($29 billion) and £ 40 billion higher in the fiscal year ending in March 2020 than it is forecast to be if the U.K. remains an EU member, according to the analysis. That would leave Mr. Osborne some way from his self-imposed goal of closing the nation's budget deficit completely that same fiscal year, meaning new spending cuts or tax increases would be needed to close the gap.

The deficit was at £ 76 billion for the fiscal year that ended in March.

The study comes amid a debate in Britain over the economic consequences of leaving the EU, as Britons prepare for the June 23 vote.

Prime Minister David Cameron, a close ally of Mr. Osborne, says an exit from the 28-member bloc would hurt trade and investment. But backers of Britain's exit, or Brexit, argue that Britain would ultimately benefit from being outside the EU, where it would be free of burdensome EU regulation and able to sign its own trade deals with faster-growing parts of the world.

The U.K. treasury said this week in a new analysis that the British economy would likely experience "a profound shock" if voters decide to quit the EU, potentially causing "a marked deterioration in economic prosperity and security."

The treasury's assessment of the potential short-term costs of Brexit comes on the heels of similar warnings from the Bank of England, the International Monetary Fund and the Organization for Economic Cooperation and Development, all of which concur that leaving the EU could damage the U.K.'s economic prospects by damping trade and slowing investment.

The Institute for Fiscal Studies' report, released Wednesday, says the precise scale of the fiscal consequences of a British exit is uncertain, and will depend on whether the U.K. continues to make a contribution to the EU budget to maintain access to the bloc's single market for goods and services. Its estimate of extra borrowing costs over the next few years assume the U.K.'s annual contribution to the EU budget, net of payments Britain receives, is halved, to around £ 4 billion annually. That's a similar arrangement to Norway, which isn't in the EU but does pay for single market access.

The Brexit-backing group Vote Leave responded to the institute's analysis by saying overstates the economic risks associated with leaving the EU and ignores the risks of remaining a member, given the economic problems of the 19-nation eurozone at the EU's core.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

May 25, 2016 03:15 ET (07:15 GMT)

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