Brexit is costing public sector workers

Brexit-induced inflation has pushed up interest on government debt by £9 billion – enough to give every public sector worker a 5% bonus, according to InFacts calculations.

Last year’s referendum vote cause the pound to plunge. That meant it became more expensive to import things which, in turn, pushed up inflation. About a quarter of the government’s debt is in the form of bonds linked to inflation. When prices rise, interest on this debt goes up.

Here’s the maths. Last June retail price inflation – the measure which determines our interest payments – was 1.6%. It is now running at 3.9%, a rise of 2.3 percentage points. Meanwhile, the government has £388 billion of inflation-linked debt. In a full year, interest on this debt would therefore be £8.9 billion higher than if inflation had stayed at the June 2016 level.

Now imagine that instead of spending £8.9 billion on interest, the money had been given to every nurse, doctor, teacher, police officer, civil servant and government employee in the country. Given that the total public sector pay bill is £179 billion, our extra Brexit interest payments would have been enough to fund a 5% bonus.

To put it another way, Brexit is forcing us to pay another £170 million a week in interest – or around half the money Boris Johnson promised the NHS. We’ve frittered it away on Brexit, and got nothing in return.

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Or look at it another way. The extra interest is over £2 billion more than the net cost of our EU membership was at the referendum. This makes a mockery of Brexiters claims to be saving our hard earned cash.

Of course, the extra interest payments on our debt will only continue so long as inflation stays higher than it was before last June. But the Bank of England isn’t forecasting much of a dip in the next three years for which it has done projections.

What’s more, if inflation keeps rising, the list of missed opportunities will keep growing. And the cost of government will rise as well. It’s not just interest payments that will go up. The cost of buying things, especially from abroad, will increase. And that’s before we talk about forking out tens of billions of pounds more on our divorce bill. All that means less money to pay for things we value, like more cash for nurses and teachers.

Of course, the public-sector pay squeeze predates the referendum. But last year’s vote has made things worse. When nurses are looking for somebody to blame for their plight, they should include Brexiters on the list.

Update

This article was changed shortly after publication to clarify that the extra £9 billion in interest payments could be used for a 5% bonus for public sector workers, rather than a 5% pay rise. A paragraph was also added to explain that the extra payments only continue so long as inflation stays high.

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Edited by Hugo Dixon