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 payments made to the EU Budget during the transition period – will have a net cost of around £35 billion-£39 billion. However, it is very difficult to put definitive figures to the settlement as it depends on future events. For instance, the settlement is exposed to changes in the exchange rates as payments will be calculated and paid in euros.
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.
Part 5 of the WA covers 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 sets out the how various parts of the 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 were to happen the Joint Committee – made up of representatives from the UK and EU – overseeing the WA’s implementation would decide the UK’s financial contribution during the period of the extension. Any extension would not impact on the financial settlement, which would continue as agreed.
The WA will only become legally binding once agreed by the UK Parliament and European Parliament.
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