Critics argue the UK has already paid its share to the EU, but leaving the bloc isn't as simple as just walking away

In Depth

Monday, June 19, 2017 – 1:42pm

During what became one of the more memorable moments of the otherwise forgettable election leaders’ debates, Paul Nuttall ridiculed the UK’s supposed Brexit “divorce bill”.

Ukip’s former leader said that after making £183bn in net contributions to the EU since 1973, London should pay nothing more.

He was immediately slapped down by Plaid Cymru leader Leanne Wood, who asked if he would refuse to “pay his dues” in a real divorce.

Her withering: “We all know blokes like you” was the stand-out moment of the 90-minute show.

However, Nuttall’s view is shared by many – including, if a leaked discussion during a dinner with Jean-Claude Juncker in late April is to be believed, our own Prime Minister.

So, what is this Brexit divorce bill and why have our past payments not already covered it?

Ongoing liabilities

Basically, Britain’s membership fees over the past four decades have gone on financing the EU and its projects, including some future plans to which we have already committed to contributing.

There are also a few other liabilities incurred during the UK’s membership that will need to be funded.

The Institute for Government and the Financial Times define four areas that add up to make the gross bill:

  1. payment for projects that have been committed to but not yet fully paid for;

  2. pensions for EU civil servants and politicians;

  3. outstanding loan payments and money to cover the potential liability of loan repayments not being made, and

  4. costs of the withdrawal itself.

Set against this, the UK would be entitled to any outstanding budget rebates, payments for EU-funded projects in this country, eventual repayments on loans and from contingencies set against them and, potentially, a reflection of its share of assets such buildings.

Calculating the cost

Estimates for the gross payment are high as €113bn (£100bn), while those for the net payment come in as low as €16bn (£14bn), says Full Fact.

Headline-makers seized on the highest total when it was set out by the Financial Times, which says the figure is based on hardline demands from some of the 27 remaining EU member states, including France, Germany and Poland.

However, Michel Barnier, the EU’s chief Brexit negotiator, has refused to be drawn on how the bill will be calculated or any figures, so these figures are speculative and depend on a view of what the UK owes and is owed in each of the relevant areas.

“The lower band… represents minimal obligations to the EU and maximum UK receipts, while the top-end… comes from maximising the UK’s obligations and minimising its receipts,” says the Institute for Government.

Specific factors that will influence the numbers include whether:

  • the EU budget contributions stop when the UK leaves in 2019 or until the current funding cycle ends in 2020;

  • the UK pays for all EU pensions or just the disproportionately smaller amount relating to those for UK nationals, and

  • the UK can rightfully claim a stake in fixed assets like buildings that will remain part of the EU.

Legal questions

Whatever the demand, there is the question of whether the UK can be made to pay it – and apparently Theresa May told Juncker it can not.

At issue here is the legal interpretation of the Article 50 clause setting out how a country leaves the EU.

A House of Lords committee concluded that once the two-year time limit expires and the UK leaves the bloc, any treaties relating to the EU no longer apply and so there is no legal mechanism to force the country to pay.

Legal opinion is divided on this, however, and there is an argument that Article 70 of the Vienna Law on International Treaties will still apply and oblige the UK to pay what is deemed to be due under existing EU agreements.

“If negotiators fail to agree on a financial settlement, the case is likely to end up in the International Court of Justice in The Hague,” says the Institute for Government.

Trade deal

Whether the UK can walk away without paying is likely to be a moot point, however. The country is very unlikely to do so because failing to honour what are seen as financial obligations could make it impossible for the country to negotiate a trade deal with the EU to its liking.

In fact, EU negotiators have said a top-line agreement on the divorce bill will be needed before trade discussions can begin.

Such a trade deal will be important. The UK currently pays in around £8.5bn net to the EU a year, or £7bn including payments to the private sector, and losing trade with the single market could ultimately cost the Treasury £36bn-£66bn a year

That is why most people expect a deal to be done. But agreeing on a figure will be tough and selling this deal to the public will be equally challenging.

Writing in the FT, Wolfgang Munchau says the government could “defuse the dispute” by agreeing a lengthy transitional deal during which EU rules continue to apply and the UK would continue to pay into the EU budget to meet its obligations.

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