#Brexit: House of Lords answers 60 billion euro question

The House of Lords EU Financial Affairs Sub-Committee has just published a report on the budget implications of Brexit for the UK and any exit payment. The report will galvanize Brexiteers who assert that the UK can walk away from EU membership without paying a single cent.

The committee considered the UK’s obligations with respect of the 2014–20 Multiannual Financial Framework when Brexit is scheduled to take place in 2019. It also considered EU programmes where the UK may wish to contribute following Brexit and the implications of seeking a deal in which the UK continues to contribute in exchange for access to the single market.

Guillotine

The report acknowledges that there are "competing interpretations", but have reached the conclusion that because the European treaties are silent on the matter, there would be no enforceable obligation to make the UK pay any financial contribution at all. The Lords have taken the view that Article 50 is in effect a "guillotine" and the UK will be free to walk away without any responsibilities should agreement not be reached.

The Lords acknowledge that a cheapy divorce is very unlikely to be cost-free and certainly wouldn’t lead to the UK’s proclaimed preference for a “smooth, orderly exit from the EU”. If the UK took this road it would be very damaging to any prospect of friendly agreements on other issues. The government has already said that it would like to continue to participate in some EU programmes and would consider paying for access to the single market – this would be very difficult to impossible if such a hard line is taken.

EU bill could be more than €60 billion

The Lords looked at assets and liabilities that might be included in any future demand for payment. Witnesses disagreed over which categories of assets and liabilities might be included in any potential demand; final estimates ranged from €15 billion to more than €60 billion.

Sequencing

As no explicit provision is made for ensuring that the UK pays for its liabilities in the Treaty, the sequencing in the negotiations is particularly important. The EU-27 will want to make sure that this matter is cleared up before anything else is discussed. Given that the UK contribution accounts for approximately 12% of the resources available to the EU budget, and is also a significant net contributor, the UK’s departure will be felt.

In his recent Chatham House speech Sir John Major said: “There are liabilities to be met: pension costs, legacy costs, contingent liabilities, a proportional share of work-in-progress. The EU will argue we have a legal obligation to pay these bills.

“If there is a stand-off – perhaps because of a backlash against the size of the exit bill – then trade talks may have to await a Court decision, be delayed indefinitely – or scrapped altogether. In either event, the faint hope of a comprehensive trade deal by Spring 2019 will have gone.”

UK’s future payments for access

Apart from picking and choosing which EU programmes it might want to continue to pay into, Brexit minister David Davis has said that the UK would be willing to make a payment for market access. This will be part of future negotiations, and is likely to involve trade-offs between the level of access sought, the structure and level of other payments and more general political considerations.

If the UK refuses to accept free movement of people or the jurisdiction of the European Court, the price exacted is expected to be proportionately higher than that demanded by say Norway. According to some estimates Norway currently pays 0.16% as a percentage of GDP or approximately €115 per person, compared to the UK's 0.25% as a percentage of GDP, or approximately €79 per person.

Richard Ashworth MEP told the committee that a regular payment into the budget would be preferable to accepting tariffs being charged on goods passing in either direction, saying it would be “cheaper than bit-part, drip-feed payment through tariffs … It is cheaper to pay an annual subscription to the golf club, rather than every time you go and play.”

Background

Full report

Share this article: