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Analysis

May’s next u-turn: mega-payments to EU?

by Luke Lythgoe & Hugo Dixon | 14.09.2017

Theresa May is limbering up to make one big flip-flop in her speech in Florence next week: to stay in the single market and customs union, in all but name, for a few years after we quit the EU. But to get the EU to agree this, she’ll need to make a further massive climbdown: signal she is ready to make mega payments to the EU to settle our financial obligations as we quit.

This would mark a u-turn from the prime minister’s own statement that “the days of Britain making vast contributions to the European Union every year will end.” But unless she promises a large chunk of cash, the EU won’t agree to move onto the next stage of the negotiations – which will address both the transitional deal immediately post-Brexit and the framework of the long-term relationship we will ultimately settle into. What’s more, to camouflage such a climbdown, May could link her willingness to make mega payments to a transitional deal.

EU leaders have suggested they want a €60 billion payment. The lion’s share of this would be to cover commitments the EU has made but where the money won’t actually be spent before Brexit. Brussels argues that since we sat round the table when these commitments were made, we should be on the hook for our share of them, which could reach €50 billion. In very rough numbers, our remaining liabilities, after netting off money we are owed by the EU, could be around €10 billion.

Transitioning towards a transition

How, though, would a transitional deal make the optics easier? Quite simply by spreading the mega payment over the transitional period and persuading the public that it is a fee for maintaining access to the single market.

Imagine there was a three-year transition and the prime minister was able to negotiate the divorce payment down to €45 billion. If that was paid over three years, the annual payment would be €15 billion (£13.3 billion). May could try to say that this wasn’t very different from the £13 billion we pay “gross” to the EU at present.

Such an approach should also work for the EU. Of course, during the transition, it would make new financial commitments and some hardliners might seek to argue that we should pay our share of those too. But, since we would no longer be sitting at the table that decided such things, it would be hard to sustain such an argument.

So the politics of such a climbdown might just work. But May should still expect to be attacked from all sides if she did such a deal. For a start, it would be disingenuous to compare annual payments during the transition with our current “gross” fee. At present, we receive back from the EU billions of pounds a year to spend on farmers, poor regions, research and other things. That took our net payment down to only £7 billion in 2015. What’s more, any payment at all is a far cry from the Brexiters’ lie that we give £350 million to the EU that will be recycled to the NHS.

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4 Responses to “May’s next u-turn: mega-payments to EU?”

  • You are suggesting that the €15bn a year would cover past commitments and liabilities. Even if, during the transition, we weren’t on the hook for big new spending commitments (because we were no longer members of the club) we would still need to pay for our continuing Single Market / Customs Union membership, as well as continued participation in programmes such as Erasmus and R+D (assuming we succeeded in cherry-picking continued involvement in such programmes as part of a ‘status quo transition’).
    Surely the overall bill would be much more than €15bn a year?

  • All this talk of a transition period before the UK exit from the EU. Surely we should be concentrating our attention on how we avoid exiting the EU at all ? Our objective must still surely be to stop Brexit. Discussions around divorce settlements are distracting us from the main objective.Public opinion in the UK must be educated to understand first of all what the EU is and how it functions and then how it is in the interests of both the UK and Europe that we continue to be a member of the EU. This is all the more important if ever there to be another referendum on the issue. The total ignorance of the general public on the issue at the time of the last referendum must be avoided at all costs.

  • The UK is abrogating its treaty relationship with 27 other countries. In that sense, there is only a “hard” Brexit. It’s not surprising that they wonder whether the UK is a trustworthy treaty partner, and are asking HMG to demonstrate that by covering budget commitments that were entered into with UK government acquiescence while it was a member. If Prime Minister May and Mr. Davis are willing to say, explicitly, to their treaty partners, as well as to the British public, that fulfilling these commitments is the legally correct (as well as honorable) thing to do, that would naturally make a significant difference in the UK’s discussions with the EU27 about establishing a new and different (if less advantageous to the UK) treaty relationship.