Brexit ‘Divorce’ Bill, Put Simply

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By Campaign Agent Luke Jeffery

€100 billion? €60 billion? €25 – €75 billion? Since the vote to leave on the 23rd June last year, various figures regarding the UK’s budgetary commitments to EU coffers have hurtled backwards and forwards across the channel. Put simply, Britain owes the EU money and is unlikely to walk away with a good deal unless an agreement on a sum can be reached. Unfortunately, the issue of how much the divorce settlement will be is unlikely to be swept under the rug we bought together any time soon; it is the first hurdle, in a series of hurdles, that the UK and the EU27 will need to overcome in order to get down to the more interesting topics of debate; customs and banking unions.

So how much will the UK owe the EU? Britain has committed payments to the current EU budget which is currently running from 2014 to 2020. This means that the UK will have to pay into all the projects and initiatives that this budget was set up for, prior to Britain’s decision to leave the European Union. As all other 27 EU governments will have to keep paying into this budget, they will want to see that all of the UK’s financial obligations are met before they think about any future trade deals with the UK. So far the most accurate ‘divorce’ bill is estimated to be around €60 billion, a figure put forward by the Financial Times which is likely to be revised to a higher figure, as demands being made by the less well performing economies of the EU27 are slowly being felt. These countries will desperately need Britain to commit to paying into the budget until the end of 2020. Satisfying these 27 ex-partners will be no easy feat.

The confusion isn’t exactly helped by the onset of varying attitudes towards the bill by the current government. Theresa May, a self-proclaimed ‘difficult woman’ has been reported saying that ‘nothing’ would be an appropriate starting point for the settlement, whilst Brexit secretary David Davis has said that ‘something’ will be owed. So why is there so much confusion surrounding the bill and its final figure? Partly, the creation of uncertainty is due to each side not wishing to show its hand in the negotiations too prematurely; there would be serious repercussions from the British people if Mrs May was to concede so early on in the discussions. The truth is, and it may hurt, that Britain will have to pay something in order to benefit from membership of some European organisations in the future. These will most likely be security, education schemes like Erasmus+, customs unions and other things that would be mutually beneficial to both parties. It is too soon and too sore to talk about frictionless trade with the single market, it is best to wait until the parents start acting responsibly.

Another concerning fact is that the Brexit bill looks a whole lot more expensive because of the tumbling pound. It isn’t exactly being helped either by Brussels asking for the money in euros. Inevitably, this will have a knock on effect on British taxpayers. Brits would expect to be hit with extra costs with or without a trade deal; increases in inflation, a rise in food prices and a generally weaker pound may just send the British public over the edge. However, what if Britain refused to pay anything? Well, refusing straight out to pay any kind of ‘divorce’ bill would risk bringing the fledgling negotiations to a standstill, not least to a potentially abrupt end. The only solution in this scenario would be an ugly legal proceeding where Britain has the assets it owns on weekdays, whilst the EU gets them on weekends. A transitional deal it would be, but a deal that nonetheless, would ease the uncertainty of Britain’s decision to leave.

Cries of ‘extortion’ and ‘go whistle’ from Westminster seemingly risk missing the bigger picture. Frictionless trade with the single market, for all its ambiguity in detail, proposes potentially incomparably large returns when lined up next to a one-off €60 billion payment to leave. If you add these potential returns to the British rebate or the potential benefits that the projects covered by the EU’s 2014 – 2020 budget might bring, then the government might just consider paying this bill as soon as possible. Awkwardly, the longer the arguments over the bill are dragged out, the clock still ticks on both sides. Put simply, the EU will need to make up a budget gap once Brexit becomes official and the UK will almost certainly have to pay in order to get any semblance of a good deal.

Sources and Further Reading:

  • Silvia Amaro, ‘EU’s chief Brexit negotiator warns on final UK divorce bill; hits back at Boris Johnson comments’, CNBC
  • The EU ‘Divorce Bill’, published 25th May 2017 at http://www.fullfact.org.
  • Daniel Boffey, ‘Brexit Divorce bill: what it is and how does it affect talks?’, The Guardian, Tuesday 20th June 2017.
  • Huggins, Christopher, ‘The Brexit Divorce Bill Explained’, http://www.theconversation.com, 29th March 2017.

One Reply to “Brexit ‘Divorce’ Bill, Put Simply”

  1. How can you possibly talk about a debt which is claimed by an organisation that has singularly failed to produce audited accounts?

    Like

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