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Brexit: the exit bill

Published Monday, October 16, 2017

When the UK leaves the EU it is expected to make a contribution towards the EU’s outstanding financial commitments – spending that was agreed while the UK was a member. The media have labelled this as an ‘exit bill’ or ‘divorce bill’, the EU see it as a matter of ‘settling the accounts’. The issue is being discussed in the first phase of Brexit negotiations under the title of the ‘single financial settlement’ (the settlement).

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The first phase of negotiations between the UK and EU must make ‘sufficient progress’ on the settlement (and other areas that will disentangle the UK from the EU) before they can move on to areas of the future EU-UK relationship, such as trade arrangements. The EU says a methodology for calculating the settlement should be agreed before talks move on.

Estimates of the settlement reported in the media have ranged from €6 billion to €75 billion net. The range of estimates highlight the fact that almost every element of the settlement is subject to interpretation and negotiation.

The EU’s position

The EU set out its position on the settlement ahead of negotiations. The EU’s position is built on the principle that the UK should honour its share of all the financial commitments made by the EU while the UK was a member. On the same basis, the EU says that the UK should be able to participate in, and receive funding from, EU programmes – such as agricultural funding – until the programmes close. Most programmes cover the period 2014 – 2020, but some spending is expected after 2020.

The EU expects the settlement to include:

  • the UK’s participation in the EU budget
  • the termination of the UK’s membership of institutions such as the European Investment Bank
  • the UK’s participation in specific EU funds and facilities that don’t come under the EU budget, such as the facility for Refugees in Turkey.

Most of the EU’s outstanding financial commitments arise from the EU Budget. The EU expect the settlement to include spending committed in the EU Budget but not yet paid to recipients – often described as ‘reste à liquider’ – and the outstanding funding agreed for EU spending programmes in the current period. These two sources are the largest outstanding commitments identified by the EU. The EU’s liabilities and contingent liabilities should also be shared by the UK, according to the EU.

The EU’s accounts do not apportion the EU Budget’s outstanding financial commitments to Member States, so a way for calculating the UK’s share needs to be agreed. The EU proposes that the UK should share the Budget’s outstanding commitments in proportion to its share of total contributions to the EU Budget over 2014-2018. In recent years the UK’s share, after accounting for the rebate, has been around 13%.

The UK is part of some EU spending outside of the EU Budget. For these programmes – such as overseas aid and spending to support Syrian refugees in Turkey – the EU expects the UK to continue to contribute as normal, in line with the specific rules and schedule for each, until they end.

The EU also proposes that the UK should cover the costs of Brexit – such as the cost of moving EU agencies from the UK – and that the UK’s shareholdings in the European Investment Bank should be returned.  

The EU does not want the settlement to result in one single payment, but would rather see a schedule of payments overtime to be established.

The UK’s position

The UK has made no formal response to the EU’s position, nor has there been a position paper from the UK on the settlement. However, in a speech in September 2017 the Prime Minster, Theresa May, suggested that the UK would meet its current EU budget plan (2014-2020) commitments so that EU Member States would not be made worse off as a result of the UK leaving. The Prime Minister also said that the “the UK will honour its commitments made during the period of our membership”. This pledge was made as part of a proposed transition or implementation period and does not extend to all commitments that the EU are seeking payment for. For instance areas such as pensions are, according to the UK Government, still debatable.

Prior to Mrs May’s speech the UK Government had recognised that the UK has financial obligations to the EU, and vice-versa, and that they need to be resolved.

Negotiations

The EU would like to have seen the UK set out its own position on the settlement, and for the two sides to negotiate their two positions. The UK has not adopted this approach and during exit negotiations has interrogated the EU’s position on the settlement line by line and presented its own legal analyses of the commitments potentially to be included in the settlement.

The UK doesn’t agree with some aspects of the EU’s legal position on the settlement. The Secretary of State for Exiting the European Union, David Davis, has said that the two sides ‘have very different legal stances’ on the settlement. Michel Barnier, the European Commission’s Chief Negotiator, has said that the UK does not feel legally obliged to honour obligations after its departure. This is at odds with the EU’s position. The EU believe that the UK should contribute for all financial commitments undertaken by the EU while the UK was a member, some of which extend to after the UK’s departure date.

Following Theresa May’s Florence speech, UK negotiators have explained Mrs May’s assurance that the UK’s departure would not make EU Member States worse off. Discussions on the settlement have continued to focus on technical aspects of the potential financial commitments. The UK is not yet ready to specify exactly which commitments the settlement should include.

Reaching a conclusion?

There are different views on when settlement negotiations can be completed. David Davis believes that the settlement can only be resolved alongside discussions over the future EU-UK relationship, discussions that will not start until the EU judge that ‘sufficient progress’ has been made in the current phase of negotiations. Michel Barnier sees no link between the settlement and the future EU-UK relationship, and that sufficient progress needs to be made on the settlement for negotiations to move to the second phase.

At the end of October’s negotiations Michel Barnier said that ‘deadlock’ had been reached over the settlement. This, and other outstanding issues in the wider negotiations, make it unlikely that Mr Barnier will recommend for negotiations to move onto the future EU-UK relationship at October’s European Council meeting. However, he was positive that the deadlock could be broken, and that sufficient progress could be achieved in time for December’s European Council.



Commons Briefing papers CBP-8039

Author: Matthew Keep

Topics: EU budget, EU external relations, EU grants and loans, EU institutions

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