€30 billion could be a ‘Brexit fee’ worth paying to secure a good deal with long-lasting benefits

€30 billion could be a ‘Brexit fee’ worth paying to secure a good deal with long-lasting benefits

The Brexit negotiations are expected to decide how much the UK will have to pay the EU to settle financial obligations undertaken while it was a member. Some EU officials have suggested that the bill should be as high as €100 billion. Many Brits would counter that the right figure is a nice round ‘zero’ – if not a refund.

The UK would certainly be on strong legal ground if it simply stopped making its regular contributions after March 2019. Article 50 is clear that, in the absence of any other agreement, EU Treaty obligations will cease to apply from that date. However, a more flexible stance could help secure better terms on other aspects of the negotiations, including any transitional arrangements before a comprehensive free trade deal can be concluded.

What’s more, the term ‘divorce bill’ is actually a little misleading. The EU existed before the UK joined and will (probably) last long after the UK has left. It is not therefore a simple matter of dividing up assets and liabilities in the same way as a divorcing couple might sell the family home or fight over custody of the dog. A better analogy is leaving a club. The UK agreed to pay membership fees in return for access to the facilities and services provided by the EU and now wants to close its account. The question, then, is when the obligation to pay membership fees should end.

It’s not entirely unreasonable to argue that the UK should be asked to make some contribution towards long-term financial commitments undertaken when the UK was a member – even if the money is spent after the UK has left. These commitments were (mostly) agreed by the UK and others are relying on them. A sensible cut-off date would be the end of 2020, when the EU’s current multi-year budget process is completed. This is similar in principle to quitting a club: if you have signed up to a long-term subscription you might still be liable for the whole amount even if you decide to leave early.

If the UK continues its planned payments until then, I estimate the bill would come to around €25 billion (£22 billion). This might be topped up to €30 billion (£26 billion) with a few reasonable extras, including a contribution to the pensions of EU officials. Of course, many would object to any further payment, but it could be a small price to pay to secure a good deal with benefits lasting many years into the future.

However, the EU is demanding a lot more than this, including large contributions to spending likely to take place well after 2020. Frankly, this is going too far. The EU needs to adjust its spending to reflect the fact that one of its biggest net contributors is leaving. A grace period until the end of 2020 would surely be long enough.

The EU is also asking the UK to make large upfront payments for contingencies that may never arise – and then wait years for a repayment. The main item here is guarantees on loans made by the European Investment Bank. It would make more sense to amend the paperwork so that the UK can remain a counterparty on the current terms, rather than require large payments back and forth.

Altogether, the EU’s demands add up to a gross bill of around €100 billion. And on this basis, the net bill would still be at least €60 billion, and probably much more, even after allowing for the UK’s rebate (itself in doubt), EU spending in the UK, and future refunds on contingency payments.

Fortunately, these are early days in the negotiations and there is surely room for compromise. As it happens, the figure of €30 billion suggested above would be consistent with meeting half way between the EU’s net €60 billion and the UK’s fall-back position of zero. But if there is ‘no deal’ by March 2019, the UK should indeed be ready to walk away without paying a penny.

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