Eight years of hard effort by Government to cut the deficit are in danger of being undermined by the way that Brexit – even before departure day – is piling costs on the Exchequer and increasing public debt simply through the continuing chaos on the foreign exchange markets.
In the last financial year Brexit cost taxpayers £5 billion in interest payments alone – because of the devaluation of the pound, increased inflation and the downgrading of the UK’s sovereign debt from Aa1 status to Aa2. Government forecasts suggest that interest payments will remain £5 billion a year higher than in 2015/16 well into the 2020s – meaning the costs of Brexit will not just be limited to the £50 billion “divorce” payment the Government have agreed to pay as part of a Withdrawal Agreement.
Lord Willetts, who today became the latest senior Conservative to come out in support of a People’s Vote on the outcome of Brexit negotiations, said:
“When the Conservatives returned to office in 2010 we made deficit reduction our number one economic priority. But plainly now the cost of servicing the National Debt is being inflated by Brexit. No Conservative supporter voted to increase public spending in this way and that is why more and more Tories are backing a People’s Vote on the final Brexit deal.
“The Conservative Party’s electoral success is based on our long-term ability to deliver economic success and support wealth creation. We should not sacrifice that to fulfil the ideological obsessions of a small number of backbenchers in the ERG. Backing a People’s Vote is good Conservative common sense, based on putting the national interest first at all times – the soundest of Tory doctrines.”
Notes to editors:
In 2015/16 debt interest cost the taxpayer £45.1 billion, whereas in 2017/18 it cost £55 billion, an increase of 22%. In this time, the national debt increased by only 11%, meaning that at least £5 billion of the extra £10 billion a year we are paying comes from Brexit induced changes in the interest and inflation rates.
The interest rates on Government debt have gone up following the downgrading of the UK’s credit rating straight after Brexit. Moody’s downgraded the UK from Aa1 to Aa2 in September 2017 (source). Further the high inflation since 2016, which is a direct result of the Brexit referendum have resulted in higher repayments for the Government.
Furthermore, government forecasts for the next 5 years suggest they will be paying at least £5 billion more than they did in 2015/16 every year. Inflation is currently running at 2.7% as of August 2018 (source) while the interest on a 10-year UK bond has risen from under 0.7% just before the referendum to 1.6% today (source).