The €60 billion Brexit bill: How to disentangle Britain from the EU budget

Policy brief
Alex Barker
06 February 2017
  • Britain’s EU exit bill is possibly the single biggest obstacle to a smooth Brexit. The European Commission calculates that the UK has €60 billion of charges to settle. Britain is confident it will face down what it considers to be spurious demands. Both sides are entering the Brexit money negotiations with unrealistic expectations. Ultimately, this political collision could bring the Brexit talks to a sudden and premature end.
  • The issues are surmountable. In pure economic terms, even that €60 billion estimate is relatively insignificant, especially when paid over many years. But disputes over EU money are almost always highly-charged and occasionally nasty. A mismanaged negotiation of the bill could easily poison Brexit divorce talks and future UK-EU trade relations.
  • The make-up of the bill is little understood, even by EU-27 countries. The €60 billion covers Britain’s potential obligations in three main areas: legally binding budget commitments that will be paid after Britain leaves; pension promises to EU officials; and contingent liabilities – such as bailout loans to Ireland – that would only require payments in certain circumstances.
  • The most legally contentious relate to support for EU investment projects that will be paid for after Britain leaves. These liabilities come in two forms: project commitments that have yet to be paid; and structural funds promised to EU member-states, which will largely be turned into ‘budget commitments’ and paid for between 2019 and 2023.
  • Both sides are confident in their legal case, and it is hard to predict who would prevail in court. There are few clear legal precedents regarding the liability of departing members of international organisations. But in the Brexit talks, the issues will largely be settled by politics, not law. Some EU negotiators want Britain to promise to honour its financial obligations as a precondition for trade and transition talks.
  • The EU-27 are confident Britain will eventually pay, because the costs of a disorderly Brexit are much higher. Theresa May is open to limited contributions to participate in future EU programmes. But she has ruled out paying "huge sums" to the EU after Brexit. An angry reaction in Westminster to a perceived ransom demand from Brussels would further constrain her options.
  • There are differences in view between the EU institutions and the EU-27 member-states. Some countries were surprised by the Commission’s aim-high approach. But over time, they could harden their positions and rally around the Commission. After all, Britain’s exit leaves a significant gap in the EU budget. Net-contributors do not want to pay more, and net-recipients do not want to lose out.
  • Any compromise should be built around three broad principles: on an annual basis, any UK legacy payments must be less than its EU membership contribution; the settlement should be presented as ‘Brexit implementation costs’ rather than tied to specific liabilities, like EU pensions; and Brexit should not leave the EU out of pocket for the last two years of its current long-term budget (2019 and 2020). Britain should separately negotiate terms and contribution rates to stay in EU research programmes and the European Investment Bank.

Comments

The EU may have aimed high on the Brexit bill, but this article is certainly aiming low. Why is it Britain's responsibility not to leave the EU out of pocket for the last two years of its long term budget? They will have to face up to a budget shortfall sooner or later. Why not when we leave? Presumably when we joined there were EU projects in progress and commitments already made. Did the EU generously let us off those? We should look to the financial settlement that was made at the time for guidance on today's payments.
Great piece, but very surprised Alex did not mention the UK's prime asset, it's 16% share of EIB, worth about 36 billion euros.
This is a clear and comprehensive account of a complex technical matter, apart from some confusion on the cover which seems to imply that UK will be taking the Irish with them when they go.
Even if the inclusion of Ireland is just a printer's mistake, the financial details of the Irish exit from the UK in 1922 give an interesting historical precedent. Article 5 of the Treaty between Great Britain and Ireland of 6th December 1921 foresaw that the Irish would assume a "fair and equitable" share of the UK national debt as well as pensions including war pensions.
This political agreement removed an obstacle to the signing of the treaty and its subsequent implementation. The negotiation of the actual amount dragged on for years afterwards but was largely negotiated by civil servants way from the political spotlight.
Adopting a similar approach to the financial issues of Brexit would help to defuse the political tension around the UK's liability.
A final thought about any claim on assets. In 1922 there was no question in London that the departing Irish might have some entitlement to a share of the imperial assets and the treaty with Ireland ignores any such possibility. Does the UK, in making a claim for a part of the paltry assets of the EU, wish to re-open some old historical issues around who is entitled to what in the case of a secession?