Parliament revises the estimate for the Brexit 'divorce settlement'. Payments will be spread through to 2064.

London

After the UK leaves the EU it is expected to make a contribution towards the EU’s outstanding financial ‘commitments’ – spending that was agreed while the UK was a member. The media have labelled this as an ‘exit bill’ or ‘divorce bill’.  The EU see it as a matter of ‘settling the accounts’.  The issue is officially entitled the ‘single financial settlement’ – or ‘settlement’.

The UK Government estimates the settlement to be between £35 billion and £39 billion.

The final cost is difficult to calculate because, among other issues, the exact cost of some elements won’t be known until 2020 and some of the items are being paid for over a number of years and will be based on outturns rather than current estimates.

The political agreement reached between the EU and UK on the settlement means that the UK will:

  • contribute to and participate in the 2019 and 2020 EU budgets;

  • continue to receive EU funding from EU programmes that are part of the 2014 – 2020 budget plan;

  • contribute towards the EU’s outstanding budget commitments at 31 December 2020 (these are budget commitments that have been made, but not yet paid);

  • contribute towards some of the EU’s liabilities – obligations to pay for certain items – incurred before 31 December 2020. EU staff pensions are the main source of such liabilities;

  • remain liable for the EU’s contingent liabilities – potential liabilities that may occur depending on the outcome of an uncertain event – which relate mainly to financial guarantees given and to legal risks;

  • receive back the €3.5 billion of capital it has paid into the European Investment Bank in 12 instalments from 2019, and will receive back the relatively small amount of capital it paid into the ECB on withdrawal;

  • continue to participate in some of EU’s overseas programmes, such as the European Development Fund, until the current round ends.

The UK and EU have reached an agreement on the principles for the settlement:

  • no EU Member State should pay more or receive less because of the UK's withdrawal from the EU;

  • the UK should pay its share of the commitments taken during its membership; and

  • the UK should neither pay more nor earlier than if it had remained a Member State. This implies in particular that the United Kingdom should pay based on the actual outcome of the budget.

The last of these principles means that payments arising from the settlement will continue well after the UK has left the EU. The Office for Budget Responsibility (OBR) – the UK’s public finances watchdog – expects that relatively small payments (of around €50 million) will still be made in the 2060s. However, they expect around 75% of payments to have been made by 2020.

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The European Commission has already translated the political agreement into legal text.  Details are in the draft withdrawal agreement (WA).  Note that this draft is not yet binding on either the EU or the UK – it is a starting point for negotiations.

Articles 127 to Article 150 of the WA deal with the financial settlement.

John ShuttleworthComment