The Brexit divorce bill explained

The amount of money the UK pays into the European Union became a crucial point of debate during the EU referendum campaign, ahead of the country’s vote to leave. The defining image of the time was Vote Leave’s campaign bus, emblazoned with the claim that the UK sends “the EU £350 million a week”. This was a figure which, in the words of the chair of the UK Statistics Authority, was “misleading and undermines trust in official statistics”.

The debate has since moved on to what Brexit will look like – but money continues to be a key theme. There have been claims and counter claims that the UK will or will not have to make payments to the EU once it leaves. Discussion over post-Brexit payments to the EU generally falls into two categories: whether the UK needs to pay an “exit bill” to cover outstanding commitments once it leaves; and which ongoing payments it needs to make to the EU in exchange for certain benefits.

An exit bill

Michel Barnier, the European Commission’s chief Brexit negotiator, allegedly told colleagues that the UK would have to continue paying into the EU budget, causing no small amount of consternation in the UK. Such a payment would, among other things, be used to cover pension liabilities for EU staff and committed spending on EU loans, projects and regional funding programmes. This liability has been estimated to be around £50 billion (US$62 billion).

These claims are made because of the way the EU budget works. It is set in a seven-year cycle, known as the multiannual financial framework (MFF). This outlines the EU’s spending commitments and priorities. The current MFF runs between 2014 and 2020. The argument goes that should the UK leave before 2020, it will still be liable to cover what it signed up for in the current MFF, up to 2020.

Unsurprisingly key Brexiteers have been vociferously dismissing the demand. There have even been suggestions that the UK should seek payment from the EU instead of paying in, based on the UK’s share in the European Investment Bank.

However, the legal position of what, if anything, the UK will have to pay in the form of an exit bill remains unclear. The regulation outlining the EU’s current MFF sets out the need to revise it if another state joins the EU, but says nothing about what would happen if a member state leaves. Anyone’s claims of certainty that the UK will or will not have to pay an exit bill should therefore be treated with extreme caution.

Continued payments

Nevertheless, the British government’s desire in the Brexit negotiations is to “secure the best possible deal”. In order to achieve this, the government has left the door open for continued cooperation with the EU.

This was acknowledged by the government in its Brexit white paper, which states: “There may be European programmes in which we might want to participate. If so, it is reasonable that we should make an appropriate contribution”.

The specifics of this will be a matter for negotiation once the talks begin. However, references in Theresa May’s speech at Lancaster House outlining the government’s negotiation objectives, and in the white paper, suggest continued cooperation to ensure collaboration in science and innovation, and in fighting crime or terrorism, are priorities for the government.

Cheque, please?

Article 50, which sets out the process for a member state to leave the EU, makes no mention of financial liabilities. As noted above, the legal position on whether or not the UK will have to continue to meet its financial liabilities up to 2020 is uncertain. Like most things in Brexit, therefore, it is a matter for negotiation.

The British government has a delicate balancing act here. On the one hand, payments to the EU after the UK has left are likely to be perceived as a betrayal against those who voted Leave in order for the UK to “take back control” of its finances. On the other hand, an outright refusal by the UK to make any payments, whether as a one-off or as a continuing payment in return for specific benefits, will severely hamper the UK’s negotiating position and the chances for the government to “secure the best possible deal”.

This issue will not only be on the minds of the UK negotiators. Brexit will see the withdrawal of a significant net-payer into the EU budget. The other EU member states will be entering the negotiation looking to ensure their financial interests are maintained.

It’s no surprise, then, that May has been extremely cautious in choosing her words about payments to the EU after Brexit has happened. She stated that “the days of Britain making vast contributions to the European Union every year will end”. Nevertheless, her statement to parliament that “what’s important is that, when we leave the European Union, people want to ensure that it’s the British government that decides how taxpayers’ money is spent” leaves plenty of room for the UK to continue to pay the EU after it leaves.

Christopher Huggins does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.