He told staff the word upsets people from Scotland, Wales, Ireland, Asia and China.
Married Davies, 62, now an independent on Caerphilly Council, has drawn up guidelines which say “many Scots, Welsh and Irish resist being called British”.
The leaflet also claims “the idea of British implies a false sense of unity”.
Davis quit Labour’s Cabinet in 1998 after being mugged at a London gay haunt and blamed a “moment of madness”.
But Wales rugby legend Gareth Edwards said: “I’m proud to be Welsh. But I’m also British and proud to have played for the British Lions.”
The council said the pamphlet was for guidance and “not an instruction to staff”.
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