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Brexit: Final payment to the EU
09 May, 2017

Keep calm: it’s a negotiation.

They say €60bn or maybe €100bn. We say they owe us. In the end there will be a package with a figure we can all live with.

Not everyone: UKIP made no-payment one of their six criteria for a successful Brexit. For the ideologues who positively desire a hard Brexit with no relationship with the EU, a row over the final bill could be the pretext for turning on the Prime Minister.

Am I not just Quitting the Gym?

If I leave the gym I must settle my account for restaurant meals that l have eaten; otherwise I walk away when my membership expires.

Leaving the EU is more complicated because we have already promised to pay future bills. We agreed that the EU should commit itself to spending under the 2014‑20 Multi-annual Financial Framework.  The EU will argue that we should pay our share of the costs that flow from those commitments.

It is a little like signing up to a full year’s gym membership. Even if l wish to quit in February, l still have to pay to December. The UK could argue that we should only pay for commitments until the point of Brexit.

Are we Committed to Commitments or to Cash?

Cash follows commitments often with a lag of several years because it takes time for projects to be approved and then implemented. The EU will wish us to pay the cash obligations that flow from our share of all the budget commitments that we have ever signed up to. That is the reste à liquider that you may have read about.

But the EU is also subject to limits on cash appropriations. So the UK could argue for paying only the cash outflows due until Brexit or until 2020. That is, we would not contribute the cash due on commitments we have signed up to where the cash call comes after Brexit/ 2020.

May I still Visit the Gym?

If l have to pay my gym membership up to the end of December, l do still have the right to use the facilities, even if l have lost interest in doing so.

If the UK is in some sort of transitional membership of the single market up to 2020, that issue resolves itself. To be clear, some of the gross amount paid over will come back in EU grants and payments to UK entities.

An additional payment for market access during the transitional period beyond the end of the Budget Framework would be separate as it would be for future benefits.

Nigel Farage’s MEP Pension

As is often the case with public sector schemes employees and employer pay contributions but these are not put into a separate fund. They offset the need for taxation. Later, pensions are paid out of taxes. The UK’s liability for future pensions can be calculated using actuarial assumptions.

There are other more contingent liabilities (promises made that are conditional on some uncertain event). We could pay a risk-weighted sum now and walk away; pay the risk-weighted sum and adjust it as payments are or are not made; or pay sums as they fall due.

With assets also it is hard to know what the right principle is. New members do not need to buy a share in the assets (apart from the European Investment Bank), so maybe a departing member has no claim on non-EIB assets. On the other hand, assets were often built up from members’ annual contributions, so perhaps we do have a claim to a share.

The Numbers

What might the bill be? Even if the principles can be agreed, the detailed figurework will be contested and far from straightforward.

The EU have not published how they arrived at their (leaked) figure. Different researchers have tried to back-cast the sum by different methods and come up with payments in the range €25 billion and €100 billion.

Not surprisingly, the EU’s €60bn or €100bn figures are at the higher end of the range. Let the negotiations begin!

The NHS will have to wait for its Money

Where does that leave the £350m a week for the NHS? Let’s say we end up at with a net payment of €40bn – £34bn. Use a more credible £150m a week figure for the contribution net of receipts. It would be 227 weeks before money could go to the NHS. Longer, if you assume future payments for future benefits.

Or do we just walk away?

The House of Lords EU Committee concluded that if the Article 50 process ended without a withdrawal agreement, “the UK would be subject to no enforceable obligation to make any financial contribution at all.”.

Lawyers had given conflicting advice. The key word is “enforceable”. While the Committee concluded that there was no obligation, it was on surer ground when it held that there was no court that could enforce an obligation.

Rather more realistically, the Committee also noted: “If the Government wishes to include future market access on favourable terms as part of the discussions on the withdrawal agreement, it is likely to prove impossible to do so without also reaching agreement on the issue of the budget.”.

In other words: yes, you can leave the club and throw a brick through the window as you go. But do not then expect to be invited to the Christmas party.

Divide and Rule?

Whatever the British negotiators’ hopes for divide and rule, maximising the UK’s budget payment is an issue that unites all EU27. Net contributors do not wish to pay more; net recipients do not wish to see their payments cut.

But then again, that sets out the fault-lines for the next EU budget row after the UK’s departure. Perhaps the EU27 will compromise a little in order to defer that row.

Last Thought

Michel Barnier’s negotiating mandate says “This single financial settlement should be based on the principle that the United Kingdom must honour its share of the financing of all the obligations undertaken while it was a member of the Union.” And “In addition, the United Kingdom should fully cover the specific costs related to the withdrawal process such as the relocation of the agencies or other Union bodies.”

Whatever the excited rhetoric of Leave campaigners, this is not a punishment. There are the actual resource costs of Brexit, such as the cost of relocating EU agencies. But for the most part it is the settlement of bills which we have already promised to pay. The argument is what those bills are.

Michael Romberg is a member of the Committee of London4Europe. Before he retired he held a number of civil service posts including Senior Specialist, Budgeting and Statistics in HM Treasury. You can read more from Michael on his Facebook page: Campaign for the Real Referendum – on the Terms of Brexit.