Brexit Bulletin: Johnson’s Math Test

(Bloomberg) -- Today in Brexit: Johnson says a no-deal Brexit will allow extra government spending. It's probably not that simple.

What's Happening?

Boris Johnson, the frontrunner to be the next U.K. prime minister, told Conservatives on Thursday night that a no-deal Brexit would boost the amount of money the government has to spend. The reality is a bit more complicated.

“In the event of a no-deal Brexit, we will have an additional 39 billion pounds ($49 billion) to spend,” Johnson told a campaign event, referring to the divorce bill that the U.K. has agreed to pay the European Union as part of its withdrawal agreement.

But much of that bill was due to be paid over many years as it reflects liabilities, such as pension payments, that will gradually come due. About half of it corresponds to payments into the EU budget for 2019 and 2020. A big chunk is due between 2021 and 2028, with some smaller payments to be made until 2064. (Johnson didn't make clear when the extra spending would be made.)

What's more, the current U.K. government has recognized that even in the event of a no-deal exit, Britain will still be on the hook for some of the bill. Otherwise, it risks losing its reputation as a country that honors its international obligations. EU officials have also said that outstanding debts would have to be settled before any talks about a future trade deal with the bloc could begin.

Johnson, who says he doesn't want a chaotic split from the bloc but will prepare for one at least as a negotiating tool, also indicated that the 26 billion pounds of so-called fiscal headroom that the government has earmarked for a no-deal Brexit could be spent. The trouble with that is that most economists expect that would be wiped out by such a departure. Earlier this week, Chancellor of the Exchequer Philip Hammond cited cross-government analysis that shows the public finances would take a 95 billion-pound hit by 2035-36 in a disruptive no-deal scenario.

The question is whether Tory members, who will choose the next prime minister in the coming days, care if Johnson's math is right. Polls suggest most of them just want to get Brexit done.

Today's Must-Reads

• “Corbynomics” is stalking the contest to be the next prime minister, with Tory rivals raising the specter of the Labour leader's economic plan.
• It's the autumn of 2020 and no-deal Britain is on its knees. The Guardian's Martin Kettle imagines a world in which the next prime minister tries to rejoin the EU.
• In case you're not already planning ahead, here's how Brexit might ruin Christmas.

Brexit in Brief

There's a Way | Justice Secretary David Gauke is emerging as one of the most outspoken potential troublemakers in the months ahead. Gauke is confident Parliament will find a way to block a no-deal Brexit without having to resort to a vote of confidence in the government, he told the House magazine. “Given that we have an activist speaker, given that there is a parliamentary majority against no-deal, a way will be found.”

Refining Confidence Votes | Newsnight's Nick Watt reports that lawmakers are plotting to amend any no-confidence motion against the future government to give the prime minister a seven-day window to abandon plans for a no-deal exit. That would allow Tories to back a no-confidence motion while reducing the risk that it would prompt a general election. 

Union First, Brexit Before That | Johnson told a campaign event in York, in the north of England, he would prioritize the union. However, he also said that failing to deliver Brexit could in turn split the nation apart. “I think the union comes first, of course it does,” Johnson said during a question and answer session on Thursday evening. “But if we don't get Brexit done, that will be the most prejudicial to the union.”

On the Markets | The pound was largely unchanged early on Friday, trading at around $1.2583.

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--With assistance from Jess Shankleman.

To contact the editor responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Adam Blenford

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