Britain prepares case to cut Brexit divorce bill
Listen to this article
This is an experimental feature.
Give us your feedback.
Thank you for your feedback.
What do you think?
The haggling over the UK’s Brexit bill is about to begin. After months of legal jostling, British negotiators have signalled their readiness to discuss specifics of the EU’s demands for a financial settlement.
At a Brussels meeting last week, the UK side asked what the basis for calculations would be “if” Britain were to pay a share of EU financial liabilities. One senior EU official says the conversation is moving from whether Britain should pay, to the question of “what is fair”.
For progress at a vital summit next month, the two sides need to close the gap between the €20bn offered so far by London and the EU’s estimate of British liabilities — about €60bn net and up to €100bn gross.
But any agreement to pay the EU billions of euros will prove hugely sensitive in Britain. The domestic political imperative is clear for Theresa May, prime minister, to reduce the bill. To do so will require difficult, potentially lengthy negotiations. Every day it takes jeopardises the prize Britain seeks: a transition deal agreed early enough to be useful for the private sector.
Here the Financial Times looks at how Britain could reduce the Brexit bill, basing its calculations on confidential European Commission estimates circulated this year. These are the issues set to become battlegrounds in the weeks ahead. If Britain were to win every argument, it could in theory bring the bill down to about €32bn in net terms. But even British officials doubt they will prevail so comprehensively.
The starting point
The EU wants Britain to pay its full share of the union’s long-term budget.
By March 2019, when the UK is scheduled to leave, the EU estimates there will be €582bn outstanding EU commitments along with €83bn of long-term liabilities such as pensions — leading to a total of €665bn.
The demand is for Britain to honour its share — estimated to be 13 per cent, or €86.4bn gross — and offer assurances over a further €11.5bn of additional contingent liabilities, such as EU loans to Ukraine. Britain has so far offered to make transition payments — worth about €20bn net — for 2019 and 2020, since during those years it wishes to retain most membership rights.
Reducing overall liabilities
Settle unpaid bills in 2019, not 2021
€16bn to €17bn
In terms of getting the bill down, Britain’s most important argument is about the date. Despite Mrs May’s goal of a transition of “about two years” after March 2019, the UK does not want to take on any further EU liabilities after that date. It would not cover any EU commitments signed off in annual budget rounds after Brexit takes place.
This amounts to paying the so-called reste à liquider — the overhang of unpaid EU bills — in 2019 rather than 2021. It makes a net difference of about €10bn to the UK bill and could bring the gross bill down by €16bn-€17bn.
‘Decommitments’ to be excluded
Not all budget commitments made by the EU are actually paid. So-called “decommitments” — obligations that the bloc ultimately decides not to fulfil — ran at about 2 per cent in the previous long-term budget. The EU says it takes account of this figure in its estimates. The UK argues the real decommitment rate is actually closer to 5 per cent. The higher the decommitment rate, the lower the Brexit bill.
A ‘fairer’ valuation of liabilities