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Analysis

Brexit bill everyone says doesn’t exist just grew bigger

by Luke Lythgoe | 03.05.2017

The EU’s negotiating mandate, announced today, provides the basis for a potential Brexit divorce bill of over €100bn. Theresa May and her ministers say they won’t pay what the EU wants. This struggle over money is arguably the thing most likely to torpedo the Brexit talks and lead to a ruinous no-deal outcome.

“There is no punishment, there is no Brexit bill,” insisted the European Commission’s chief negotiator Michel Barnier, strenuously avoiding any mention of specific figures. “The financial settlement is only about settling the accounts.”

“Settling the accounts” may sound slightly more menacing to a British ear than Barnier intended. Either way, the ballooning non-bill has been met with hostility in London. Brexit minister David Davis told ITV: “We will not be paying €100 billion,” adding that the government will meet its international obligations, but they would be “the ones that are correct in law, not just the ones the Commission want”.

Meanwhile, Theresa May reportedly told Commission president Jean Claude-Juncker at their infamous Downing Street dinner that the UK did not have to pay “a penny”.

According to calculations by the Financial Times, based on the demands coming out of European capitals, the figure has risen from the previously much-touted €60 billion, to a gross settlement somewhere between €91 billion and €113 billion. Over perhaps a decade this would net off at about €55 billion to €75 billion. Separate analysis by Brussels-based think-tank Bruegel reached similar figures.

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The bulk of the increase comes from new demands, led by France and Poland, for the UK to continue paying annual budget spending up to 2020 when the current seven-year budget round ends. The EU says UK “must honour its share of the financing of all the obligations undertaken while it was a member of the Union”. This includes subsidies into the EU’s agricultural fund. Previous calculations assumed that, beyond March 2019, Britain would only be on the hook for larger, long-term commitments.

The mandate also specifically references “contingent liabilities”, such as loans paid out by the EU during the UK’s membership. The approach to these has shifted in Brussels, the FT reports, from allowing the UK to cover its share of the losses on loans at the point they arise to demanding a lump-sum payment upfront to cover the UK’s liabilities. The UK would then be paid back as EU’s debtors serviced their loans – hence the sizeable difference between gross upfront payments and the eventual net payment a decade or so down the line.

Other thinking from Europe has also pushed up the divorce bill estimate, for example France and Germany’s reluctance to pay the UK the full share of the assets it thinks are owed it. The mandate doesn’t mention this, but it does throw in a few other specifics which were on the maybe pile. There’s the cost of moving EU agencies out of London – the rent on the European Medicines Agency’s long-term office lease alone is €400 million. Then there’s the obligation to support for refugees in Turkey and the cost of terminating our European Investment Bank membership.

The ultimate payment will be settled by negotiation not strict maths. But the swelling of the EU’s already contentious figures has made this particular part of the negotiations even more dangerous.

Edited by Hugo Dixon

2 Responses to “Brexit bill everyone says doesn’t exist just grew bigger”

  • €100bn represents about eight years’ worth of our net budget contribution (correct me if I’m wrong, someone), so Brexit logic would suggest signing back on for that length of time on the understanding we then leave with no further bill to pay. But “the people have spoken” mantra defies all logic….unfortunately.