The financial settlement - often labeled the 'exit bill' or 'divorce bill' - sets out how the UK and EU will settle their outstanding financial commitments to each other.Jump to full report >>
The UK and EU have reached an agreement on how to settle their financial commitments to each other after Brexit. The financial settlement (the settlement) sets out the financial commitments that will be covered, the methodology for calculating the UK’s share and the payment schedule. The commitments arise from the UK’s participation in the EU Budget and broader aspects of the UK’s EU membership. The media have labelled this as an ‘exit bill’ or ‘divorce bill’, the EU see it as a matter of ‘settling the accounts’.
The UK Government estimates that the settlement – which includes the UK’s participation in the EU Budget during the transition period – will have a net cost of around £35 billion-£39 billion. Definitive figures of the settlement can’t be calculated as it depends on future events. For instance, it is exposed to changes in the exchange rates as payments will be calculated and paid in euros. The UK will also not begin making payments under the settlement until the UK has left the EU.
What has been agreed?
The settlement was agreed politically by the EU and the UK in a joint report following the first phase on withdrawal negotiations. The joint report has been turned into legal text in the Withdrawal Agreement, which will become legally binding once it has been approved by the UK Parliament and the European Parliament.
The agreement reached on the settlement means that the UK will:
The UK and EU agreed some principles for the settlement:
The last of these principles implies that the United Kingdom should pay based on the actual outcome of the budget, which means that payments arising from the settlement could continue well after the UK has left the EU. The Office for Budget Responsibility (OBR) – the UK’s public finances watchdog – expects that relatively small payments (of around €100 million) will still be made in the 2060s. However, they expect around 73% of net payments to have been made by 2022.
The OBR’s estimate was made before Article 50 was extended and the UK’s withdrawal delayed. The delay impacts on estimates of the settlement’s cost. By not leaving on 29 March 2019 some of the payments the UK was expected to make through the financial settlement (during the transition period) will now be made through its contributions as an ongoing Member State.
The Withdrawal Agreement (WA) sets out, in legal terms, how various elements of the financial settlement will be calculated and administered. It also sets out the practicalities for payments between the UK and EU after 2020.
The WA allows for the transition period to be extended. If this happens the Joint Committee overseeing the WA’s implementation – made up of representatives from the UK and EU – will decide the UK’s financial contribution during the extension. Any extension would not impact on the financial settlement, which would continue as agreed.
The WA will only be legally binding once agreed by the UK and European Parliaments.
Legislating for the financial settlement
The UK Government intends to introduce the EU (Withdrawal Agreement) Bill to implement the final Withdrawal Agreement in domestic law. A White Paper was been published – Chapter 4 sets out a potential legislative approach for making the payments required under the settlement to the EU. It also proposes an approach for scrutinising these payments. Broadly speaking, the approach proposed is similar to that used for the payments the UK currently makes to the EU.
Commons Briefing papers CBP-8039
Author: Matthew Keep