“Britain will be presented with a £50bn exit bill by the European Union as soon as Theresa May triggers Article 50, the chief negotiator for Brussels is warning.”
Daily Telegraph, 16 December 2016
Another week, another warning that UK taxpayers could be left paying into the EU for years after Brexit.
With a rate of inflation that would shame a Mafia loan shark, the latest sum to appear in the headlines is £50bn, attributed to the European Commission’s lead negotiator, Michel Barnier.
A couple of months ago, newspapers were talking about an “exit bill” of less than £20bn.
Some pro-Brexit politicians have dismissed all this as scaremongering. The Telegraph quotes Iain Duncan Smith as saying: “There are real questions about what we owe, it’s probably peanuts. (Mr Barnier) is deploying the tactics of project fear.”
Will Britain really have to carry on paying after leaving the EU? Why? How much will the final bill be?
Several EU budget experts have long pointed out that Britain could well end up having to pay into Brussels coffers well after 2019, when we look likely to make our exit.
Why? Because David Cameron made a commitment to fund the whole current EU spending cycle, which runs from 2014 to 2020.
We signed up at the start, and the other member states might feel that we ought to honour that commitment to pay for the whole seven years, even if we bail out before the end.
The next issue is that EU spending works in a slightly odd way. The bloc sometimes makes commitments to fund projects, but the actual cash is not spent until later – often three years later, but sometimes longer.
This time lag, called “Reste à Liquider” (RAL), has been the source of many a scary news story over the years concerning enormous black holes in the EU budget.
The suggestion is that Britain could be called upon to stump up for commitments made during this spending cycle until at least 2023, or perhaps long after.
Professor Iain Begg from the London School of Economics, a leading EU budget expert, told Channel 4 News: “2030 could arise because “reste à liquider” can include very old commitments.
“The current RAL does show some lingering liabilities from 2006. They can still be there because either there has been a dispute about the validity of a claim or, simply, bills have been extremely slow to come through.”
Similarly, there is a suggestion that Britain could be asked to continue paying the pensions of retired Brussels officials and MEPs after 2019. (This often enrages eurosceptics, but remember that several thousand of those pensioners will be British.)
While pensions are paid out of the EU budget, article 83 of the EU’s staff regulations states that member States “jointly guarantee payment” if they cannot be covered by the budget.
The suggestion is that Britain could be called on to honour past pension commitments made while it was a member state.
Another complex area is Britain’s decision to underwrite loans made by EU institutions like the European Investment Bank. Could British taxpayers be on the hook years down the line if a debtor defaults?
All of these questions appear to be up for negotiation, and as Professor Begg puts it “the legal position is at best murky”.
A couple of months ago the Financial Times published an analysis of the possible “divorce bill” from these joint financial obligations and put it at 20bn euros, or around £17bn at time of writing.
The latest figure being quoted this week is £50bn. The number has been quoted in several news reports and attributed to Michel Barnier, but it’s not something he has said on the public record.
Quoting unnamed sources, Sky News reports that Mr Barnier has mentioned this sum to EU leaders, and that it has been mentioned separately to diplomats.
Giacomo Benedetto, Jean Monnet Chair at Royal Holloway, University of London, called £50bn “a back-envelope-figure at the very top end of what might be payable”.
Despite all this talk of a “bill”, it’s not clear whether Brussels expects Britain to hand over a lump sum as a severance payment, or whether negotiators are looking for a commitment about various payments Britain is prepared to make in the future.
Whatever the final sum, it could vary significantly as the exchange rate between the euro and the pound fluctuates.
And at this point we have to remember that there’s a whole other reason why Britain could carry on paying into EU coffers after Brexit that has nothing to do with these previous spending commitments.
If Britain wants to ensure continued access to the Single Market by remaining in the European Economic Area, we may have to pay significant amounts of money, like Norway and Iceland.
In other words, there could be a divorce settlement, then we could find ourselves renting an apartment from our ex-wife.
As with almost every aspect of the Brexit process, there’s a lot of uncertainty here.
Academics appear to agree that Britain has made EU funding commitments that could stretch beyond 2020, but no one has published a definitive figure of what the total liability is.
The £50bn figure that has cropped up in headlines this week is in excess of independent estimates that have already been published, but some commentators feel it’s at the top end of the plausible range.
And remember that Single Market access could come with a significant fee attached, so there are many reasons while it will be hard for the government to deliver the Vote Leave promise of reducing Britain’s payments to the EU to zero overnight after Brexit.