Britain will be "permanently poorer" if it leaves the EU in a June referendum and the cost to households could be £4,300 (5,400 euros, $6,100) a year, Chancellor of the Exchequer George Osborne warned on Monday.
Osborne said the short-term effect would be a "profound economic shock and real instability" and it was "complete fantasy" to expect that Britain could negotiate an advantageous trade deal with the EU if it withdrew.
"Britain would be permanently poorer if we left the European Union," Chancellor of the Exchequer Osborne said in a speech at a factory in Bristol, presenting a 200-page Treasury report on the financial impact of a so-called Brexit.
"It's the biggest decision for a generation," he said, as Britain prepares for a closely fought June 23 referendum on whether to leave or remain in the European Union.
The Treasury analysis outlined three possible scenarios following a Brexit.
Under the first scenario, Britain would remain a member of the European Economic Area like Norway and would have broad access to the single market but with no say in the policy decisions that shape it.
Under the second, it would negotiate a bilateral deal like Canada or Switzerland -- a scenario that the report said would lead to growth being six percentage points smaller than it would otherwise be by 2030.
The most radical outcome examined was Britain having no deal with the EU and relying only on its World Trade Organization (WTO) membership status to trade with the EU, like Brazil or Russia.
The annual loss of gross domestic product (GDP) per household would be £2,600 under the first scenario, £4,300 under the second and £5,200 under the third, the report said.
"The conclusion is clear: for Britain's economy and for families, leaving the EU would be the most extraordinary self-inflicted wound," Osborne said.
"There would be less trade, less investment and less business... Leave the EU, and the facts are: Britain would be permanently poorer," he wrote in The Times.
Under all scenarios, Britain would have a "less open and interconnected economy," he said in the newspaper.
It's a complete fantasy to suppose that there is some radically different other arrangement that Britain could negotiate, where we have access to the single market but don't accept any costs or obligations of EU membership," Osborne wrote.
In an interview with BBC radio, he also said that expecting a favourable trade deal to result from Brexit would be "economically illiterate".
The Treasury report has been months in the making and is the starkest warning yet from the government.
The polls show the "Leave" and "Remain" camps are evenly split at around 50 percent each.
Around a fifth of voters remain undecided, however, as the campaign officially got started last week.
- Vote on a 'knife-edge' -
The run-up to the referendum is being closely watched across Europe and beyond because of its potentially far-reaching economic and political consequences.
The Treasury report is being published just days before US President Barack Obama is due in London on a visit in which he is expected to underline the importance of Britain staying in the EU.
The world's G20 top economies last week warned that one of the risks to the global economy was "the shock of a potential UK exit from the European Union".
International Monetary Fund chief Christine Lagarde also called on Britain and the EU to save a "long marriage".
The IMF last week downgraded its forecast for British economic growth by 0.3 percentage points to 1.9 percent for 2016, although it held its 2017 forecast at 2.2 percent.
Charismatic London mayor Boris Johnson, who is campaigning for Britain to leave the EU, wrote in the Daily Telegraph that the vote was on a "knife-edge".
"All the usual suspects are out there, trying to confuse the British public and to persuade them that they must accept the accelerating loss of democratic self-government as the price of economic prosperity," he said.
John Redwood, a pro-Brexit lawmaker and former government minister, dismissed the Treasury analysis, comparing it to arguments made in favour of staying in the EU's Exchange Rate Mechanism.
"The remainers were wrong then and they are wrong now -- people should not trust their judgement on the EU," Redwood said.