Even by Brexiters’ Standards, This Hollow Claim is a New Low

As one economist, Frances Coppola, asked on Twitter, what had David Davis been smoking? In a keynote interview with the BBC’s Andrew Mar on Sunday, the Secretary of State for Exiting the EU said that Britain would simply not pay the £40 billion it had agreed just two days earlier that it owed as a departing member if it did not get a trade deal with the EU.

While some might see this as a tough negotiating position, it is such patent nonsense it is hard to imagine why he said it. It immediately raised the idea that a member of the Group of Seven industrialised nations would simply turn its back on its financial obligations.

One wonders what the financial institutions that hold Britain’s £1.6 trillion debt and whom the Treasury’s Debt Management Office asks to buy more bonds to help fund the deficit £52 billion over the coming fiscal year thought as they watched this government effectively default on its debts.

The one group of people who have something to say would be the credit rating agencies, who hand out the grades to governments that investors follow closely when deciding whether to buy their sovereign bonds.

this was bravado for the benefit of pro-Leave voters

The UK has already lost its cherished triple-A rating — the highest available grade — after their reckless austerity programme in the wake of the global financial crisis led to a pronounced slowdown in growth. Rating agencies’ grade are a measure of the chance of default, so the chances of dropping to an A+ grade (the same as Chile and Slovenia) are quite high.

One can only assume that this was bravado for the benefit of pro-Leave voters watching Andrew Marr to check that the government was loyally following their agenda. However, just as Davis and Theresa May have turned their once unlovable negotiating red lines pink over the negotiating timetable, alignment with the single market and many other, so this refusal to pay its debts will be conveniently forgotten.

The plain reason for his statement is the need to cover up the harsh reality: the government is spending a large amount of time, money and political energy to secure a deal that will be much worse than what the UK enjoys as a member of the EU. The truth may be painful but at least it’s the truth.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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