(qlmbusinessnews.com – – Tue, 1st Aug 2023) London, Uk – –
The drop in the value of the pound during former Prime Minister Liz Truss's unsuccessful budget plans had a costly impact on the UK's Brexit bill payments to the European Union, according to recent figures.
As per the annual report released last month by Britain's finance ministry, there was a loss of £91 million ($118 million) due to currency movements related to the Brexit settlement during the 2022/23 financial year.
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In the past, the Treasury's losses have typically ranged from zero to a few million pounds.
Around half of the £91 million loss resulted from a payment to the EU on September 30, 2022 – just a week after Truss's tax-cutting “Growth Plan” was announced. This payment of 855 million euros cost Britain £764 million on a day when 1 pound was only worth 1.12 euros.
In April 2022, when the EU updated Britain's payment schedule for June through September, it was based on an assumed exchange rate of approximately 1.18 euros per pound. This would have led to monthly payments of £719 million instead of £764 million.
Truss's Growth Plan, often referred to as the mini-budget, involved significant tax cuts, causing a financial market meltdown and exacerbating issues with pension funds.
Following the announcement, the pound dropped to 1.08 per euro on September 26, its lowest level since late 2020, before experiencing a partial recovery before the EU divorce payment on September 30.
The losses resulting from currency fluctuations during the EU payments, amounting to tens of millions of pounds, might be relatively small in economic terms. However, they still represent a tangible cost resulting from market turbulence around the time of the mini-budget.
A Treasury spokesperson stated that foreign exchange fluctuations were expected during the lifetime of the Withdrawal Agreement. It was mentioned that the UK had achieved an overall net gain of £0.1 million over the 2021/22 and 2022/23 payment periods.
Nevertheless, this small net gain is a significant decline from the £91.2 million recorded in March 2022, with the payment on September 30 causing a noticeable loss.
James Murray, the opposition spokesperson from the Labour Party, commented on the situation, accusing the Tory government of causing ruinous damage to the UK's public finances. He claimed that the government's reckless policies led to a freefall of the pound, resulting in millions of extra payments to the EU.
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Economists estimate that the broader costs associated with the mini-budget episode, such as the loss of investor confidence and higher market interest rates, reach billions of pounds.
Recently, it was reported that former finance minister Kwasi Kwarteng withheld official warnings from the independent Office for Budget Responsibility, revealing that borrowing was on track to increase even before the ill-fated Growth Plan was implemented.
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