House of Commons Library

Brexit: the exit bill

Published Monday, July 30, 2018

The UK and EU have reached a political agreement on how to settle their financial commitments to each other after Brexit. Broadly speaking, the obligations arose largely as a consequence of the UK participating in the EU Budget, and also commitments related to broader aspects of the UK’s membership of the EU. The media have labelled this as an ‘exit bill’ or ‘divorce bill’, the EU see it as a matter of ‘settling the accounts’.

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The issue was discussed in the first phase of Brexit negotiations under the title of the ‘single financial settlement’ (the settlement). The first phase also included other ‘separation issues’ such as citizens’ rights and the Irish border.

The agreement on the settlement formed part of a joint report agreed by the Commission and the UK on progress during the first phase on negotiations. The joint report will not be legally binding until it enters into a final Withdrawal Agreement.

The UK Government estimates that the settlement – which includes payments made to the EU Budget during the transition period – will cost around £35 billion-£39 billion. However, it is very difficult to put definitive figures to the settlement as the actual payment will be based on outturns – rather than current estimates – which depend on future events. For instance, the settlement is exposed to changes in the exchange rates as payments will be calculated and paid in euros.

The political agreement

The agreement reached on the settlement means that the UK will:

  • contribute to and participate in the 2019 and 2020 EU budgets, as part of the transition (or implementation) period;
  • continue to receive EU funding from EU programmes that are part of the 2014 – 2020 budget plan;
  • contribute towards the EU’s outstanding budget commitments at 31 December 2020 (these are budget commitments that have been made, but not yet paid);
  • contribute towards some of the EU’s liabilities – obligations to pay for certain items – incurred before 31 December 2020. EU staff pensions are the main source of such liabilities;
  • remain liable for the EU’s contingent liabilities – potential liabilities that may occur depending on the outcome of an uncertain event – which relate mainly to financial guarantees given and to legal risks;
  • receive back the €3.5 billion of capital it has paid into the European Investment Bank in 12 instalments from 2019, and will receive back the relatively small amount of capital it paid into the ECB on withdrawal;
  • continue to participate in some of EU’s overseas programmes, such as the European Development Fund, until the current round ends.

The UK and EU agreed some principles for the settlement:

  • no EU Member State should pay more or receive less because of the UK's withdrawal from the EU;
  • the UK should pay its share of the commitments taken during its membership; and
  • the UK should neither pay more nor earlier than if it had remained a Member State. This implies in particular that the United Kingdom should pay based on the actual outcome of the budget

The last of these principles means that payments arising from the settlement will 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 €50 million) will still be made in the 2060s. However, they expect around 75% of payments to have been made by 2022.

OBR estimates of the financial settlement

OBR estimate of financial settlement payments

Turning the political agreement into a legal agreement

The UK Government and European Commission have made progress on translating the political agreement of the joint report into legal text. They have published a 129-page draft withdrawal agreement (WA). The negotiating teams aim to finalise the entire WA by October 2018.

Articles 127 to Article 150 of the WA deal with the financial settlement. Broadly speaking, each area of the settlement agreed in the joint report is included in an article or series of articles in the WA. The WA fleshes out some of the details and logistics of the settlement.

Although the WA is currently a draft no significant changes are expected to the articles that relate to the financial settlement, they will only be subject to technical legal revisions. 

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

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

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