LONDON: Sterling’s drop at the time of former Prime Minister Liz Truss’s failed budget plans meant the British taxpayer stumped up tens of millions of pounds extra to fund Brexit divorce bill payments to the European Union, paid in euros, new figures show.
In its annual report published last month, Britain’s finance ministry booked a 91 million-pound ($118 million) loss on currency movements related to payments to the EU under the terms of the Brexit settlement during the 2022/23 financial year.
In previous years, the Treasury’s “reportable losses” have ranged between zero and a few million pounds.
About half of the 91 million-pound loss stemmed from a payment to the EU on Sept. 30, 2022, - a week after the announcement of Truss’s tax-cutting “Growth Plan” - according to a Reuters analysis.
This 855 million-euro payment cost Britain 764 million pounds on a day when 1 pound would buy only 1.12 euros.
Back in April 2022, when the EU updated Britain’s payment schedule for June through September, it assumed an exchange rate of around 1.18 euros per pound - equating to monthly payments of 719 million pounds rather than 764 million pounds.
Truss’s Growth Plan published on Sept. 23, widely known as the mini-budget, formed the biggest package of tax cuts in decades and triggered a meltdown in British financial markets, exacerbated by the structure of pension funds.
In the immediate aftermath, sterling sank to 1.08 per euro on Sept. 26, its lowest level since late 2020, before recovering partially in the run-up to the EU divorce payment on Sept. 30.
The tens of millions of pounds of losses resulting from the currency moves around the EU payments are small in economic terms, but nonetheless represent a tangible cost arising from market turbulence around the time of the mini-budget.
“Foreign exchange fluctuations are expected over the lifetime of the Withdrawal Agreement,” a Treasury spokesperson said, adding that Britain had made an overall net gain of 0.1 million pounds over the lifetime of the payments in 2021/22 and 2022/23.
Still, that small net gain represents a sharp drop from March 2022 when it stood at 91.2 million pounds - with the payment on Sept. 30 a conspicuous loss-maker.
“This is yet more evidence of the ruinous damage done to the UK’s public finances by this Tory government, handing over millions more to the EU than should have been paid, after their reckless policies sent the pound into freefall,” said Labour Party opposition spokesperson James Murray.
Economists put the broader costs of the mini-budget episode - stemming from loss of investor confidence and higher market interest rates - in the billions of pounds.
Last week, Reuters was first to report that documents from the independent Office for Budget Responsibility showed former finance minister Kwasi Kwarteng held back official warnings that borrowing was on course to rocket, even before he attempted his ill-fated Growth Plan.
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