House of Commons Library

Brexit: the financial settlement - a summary

Published Friday, February 14, 2020

The financial settlement - often labelled the 'exit bill' or 'divorce bill' - sets out how the UK and EU are settling their outstanding financial commitments to each other.

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In the financial settlement (the settlement), the UK and EU have set out how they will settle their outstanding financial obligations to each other. The obligations arise out of the UK’s participation in the EU budget and broader aspects of its EU membership.

The settlement says which financial commitments will be covered, the methodology for calculating the UK’s share and the payment schedule. The settlement is part of the Withdrawal Agreement, which is the legally binding treaty setting out the negotiated terms of the UK’s departure from the EU.

There is no definitive cost to the settlement. The final cost to the UK will depend on future events such as future exchange rates and EU budgets. Estimates suggest a net cost to the UK of around €33 billion (£30 billion). Much of the cost will come in the early years of the settlement, but the Office for Budget Responsibility (OBR) – the UK’s public finances watchdog – forecast that relatively small payments will continue until the mid-2060s.

Financial settlement path

Underlying principles

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 means that the UK will make payments based on the outturns of EU budget.

What is included in the settlement?

Broadly speaking, the settlement can be split into three components:

  • During the transition period, until the end of 2020, the UK will pay into the EU budget almost as if it were a Member State. The UK will also receive funding from EU programmes– such as structural funding – as if it were a Member State.
  • EU annual budgets commit to some future spending without making payments to recipients at the time. The commitments will become payments in the future. The UK will contribute towards the EU’s outstanding commitmentsas at 31 December 2020. Recipients in the UK will also receive funding for outstanding commitments made to them.
  • The UK will share the financing of some EU liabilitiesas at the end of 2020, and any materialising contingent liabilities, and will receive back a share of some assets. The pensions of EU staff are likely to be the most significant liabilities for the UK, while the most significant item being returned to the UK is the capital it paid into the European Investment Bank (EIB).

Not everything in the settlement fits neatly into these three components. For instance, the UK has agreed to continue to contribute to the EU’s main overseas aid programme – the European Development Fund – until the current programme ends. This programme is funded directly by Member States, rather than through the EU budget. The UK’s contribution counts towards its commitment to spend 0.7% of national income on overseas aid.

Financial settlement, by component

The Library briefing Brexit: the financial settlement – the detail covers the settlement in more depth including topics such as the settlement’s origins, negotiations and the legal form it takes in the Withdrawal Agreement.

 

 

Commons Briefing papers CBP-8822

Author: Matthew Keep

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

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