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Analysis

Brexit “divorce bill” battles will rage on and on

by Luke Lythgoe | 23.11.2017

If Theresa May thinks doubling her EU exit payment offer will settle the matter, she is wrong. The complex details of the divorce bill will occupy negotiators throughout the Brexit talks and beyond. The risk of a bust-up over money won’t go away.

During a Cabinet sub-committee meeting on Monday, Brexiter ministers agreed to offer the EU more money. No figure was decided, but it is expected to amount to around £40 billion – double the sum May suggested in her Florence speech.

The first problem is this won’t be enough for Brussels. EU officials have suggested the gesture might be able to break the Brexit deadlock and move talks onto phase 2, but “only if it’s not the final figure”. In contrast, May’s Brextremist backbenchers think it’s too much already, with one warning her the “public will go bananas” over such a sum.

Even if the offer works and talks move on to our future partnership and trade, the financial settlement will still be lurking in the background. The debate taking place now is about how the final sum will be calculated, not concrete figures. Negotiators will be thrashing out specific technical points throughout the Brexit talks.

The FT has done an excellent in-depth analysis into seven battlegrounds.

  • When the UK should stop paying for new commitments made by the EU. If we can draw the line when we leave in 2019 rather than when May’s hoped for transition ends in 2021, the FT reckons that could save Britain £14-15 billion.
  • How many projects the EU cancels. The higher the assumed rate of “decommitments”, the less we’ll pay.
  • Pensions for EU staff. The higher the “discount rate” used for pensions due years or decades into the future, the less we’ll pay.
  • The UK’s share of the EU budget. If it agrees this should be lower because our economy has shrunk after the Brexit-induced fall in the pound, we will again pay less.
  • EU investment in the UK due after Brexit. If this is scrapped, the sum could be knocked off what we owe the EU.
  • EU assets. If it agrees that we should get a share of its buildings, satellites and cash, that too could lead to a lower bill.
  • Our last year’s rebate. This is due to be paid in 2019. If the EU lets us have it, the bill will again fall.

None of this will be plain sailing. And given that the UK has so far made all the concessions in the negotiations, the EU has every incentive to play hardball.

Even if a final Brexit deal is agreed and ratified, the issue of payments may keep rearing its head. For example, if the government decides a two-year transition isn’t long enough, which it isn’t, Brussels will ask for more money for every extra year. A five-year transition could see the final sum reaching £80 billion.

Nothing is agreed until everything is agreed, as both sides like reminding us. Agreeing our exit payment could take a very long time indeed.

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Edited by Hugo Dixon