Brexit divorce bill
Part of a series of articles on | |
Brexit | |
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Withdrawal of the United Kingdom from the European Union Glossary of terms | |
Jul 2018 | |
Withdrawal agreement plan presented | July 2018 |
Withdrawal agreement released | Nov 2018 |
Scottish Continuity Bill blocked | Dec 2018 |
Meaningful votes | Jan–Mar 2019 |
Brexit delayed until 12 April | Mar 2019 |
Cooper–Letwin Act passed | Apr 2019 |
Brexit delayed until 31 October | Apr 2019 |
European Parliament election | May 2019 |
Theresa May resigns as PM | Jul 2019 |
Boris Johnson becomes PM | Jul 2019 |
Prorogation and annulment | Aug–Sep 2019 |
Benn Act passed | Sep 2019 |
Withdrawal agreement revised | Oct 2019 |
Brexit delayed until 31 January | Oct 2019 |
2019 general election | Dec 2019 |
Agreement Act passed | Jan 2020 |
UK leaves the European Union | Jan 2020 |
Implementation period begins | Jan 2020 |
UK–EU trade deal agreed | Dec 2020 |
Future Relationship Act passed | Dec 2020 |
Scottish Continuity Act passed | Dec 2020 |
Implementation period ends | Dec 2020 |
New EU–UK relationship begins | Jan 2021 |
UK–EU trade deal ratified | Apr 2021 |
Windsor Framework released | Feb 2023 |
Windsor framework adopted | Mar 2023 |
The term "Brexit divorce bill" refers to payment due to the European Union (EU) from the United Kingdom (UK) when it left the EU (a process commonly referred to as Brexit) to settle the UK's share of the financing of all the obligations undertaken while it was a member of the EU.[1] In the Withdrawal Agreement, it is officially referred to as the "financial settlement".[2]
As of July 2022[update], HM Treasury's estimate of the financial settlement when the UK left the EU on 31 January 2020 was £35.6 billion (€42.4 billion).[3] From 31 January to 31 December 2020, the UK was in a transition period, and continued to contribute to the EU as if it were a member until the end of the transition period, reducing the amount of the financial settlement.[4] From December 2020, the payments accrue twice a year. By 31 December 2021, the UK had paid a net amount of £11 billion and was due to have paid a further net £3.3 billion to the end of May, leaving £21.3 billion outstanding, with future current payments of almost €900 million a month.[3]
The UK and EU began negotiations with differing perspectives on the basis for the bill. The UK side saw it as payment for preferential access to the
History of the negotiations
During the
"And because we will no longer be members of the single market, we will not be required to contribute huge sums to the EU budget. There may be some specific European programmes in which we might want to participate. If so, and this will be for us to decide, it is reasonable that we should make an appropriate contribution. But the principle is clear: the days of Britain making vast contributions to the European Union every year will end."[8]
Despite the claim, ministers and officials, including Secretary of State for Exiting the European Union David Davis, had already indicated that some kind of payment to the EU might have to be part of a future trade deal[9] and the House of Lords were told in January 2017 that the UK may have to contribute to the EU's budget after Brexit because of previous obligations entered into, unless a deal is done.[10]
The leaders of France and Germany both stated that the UK would need to agree to terms regarding departure, including in relation to a divorce bill, before discussing future relationships. This was reinforced by EU27 guidelines issued to the remaining 27 countries.[11]
Estimates of over £50 billion appeared for a divorce bill and there were concerns raised about whether, and how much, the UK would owe the EU and that such a dispute could lead to an early end to negotiations, with the UK leaving the EU without a deal.
House of Lords report
"27. It may seem intuitive that when the UK leaves the EU, it leaves behind both the responsibilities and benefits of membership. However, this does not take account of the complexity of the UK's participation in the EU, nor of the procedures for agreeing current and future budgets, which involve mutual commitments projected many years into the future. ...33. The range of values in circulation for the UK's potential 'exit bill' indicates that the absolute sum of any posited settlement is hugely speculative. Almost every element is subject to interpretation."
HL Paper 125, 4 March 2017, European Union Committee 15th sessional report, Brexit and the EU budget , Chapter 3, Potential demands.[1]
A 4 March 2017 report of the European Union Committee of the House of Lords acknowledged that the EU may claim for (1) part of the current budget (which runs from 2014 to 2020) post March 2019, because it was approved by the UK (2) part of the EU future commitments which amount to €200 billion and (3) a contribution if the UK is to continue with access to some EU programmes.[13] The report concluded that the UK had no legal obligation to make "exit" payments to the EU if there was no post-Brexit deal.[14][15]
Trigger of Article 50
Theresa May's letter of 29 March 2017 to
On 29 April 2017, the EU27 heads of state unanimously accepted[17] negotiating guidelines prepared by Donald Tusk.[18] The guidelines take the view that Article 50 permits a two-phased negotiation, whereby the UK first needs to agree to a financial commitment and to lifelong benefits for EU citizens in Britain, before the EU27 will entertain negotiations on a future relationship.[19]
The Prime Minister insisted to
EU position paper
In June 2017, the EU drafted a 11-page position paper setting out the essential principles for a financial settlement and the methodology for calculating the obligation.[2][22]
Two different legal approaches arose in determining the financial element of the
- « All that is necessary in this negotiation is that everyone honors the commitments that they have made to each other. To settle the accounts. No more, no less.»
- « To settle the accounts in an objective manner, on the basis of all commitments made at 28.»
- « (...) to provide – and (...) must provide – certainty for project managers working in Europe, such as in Italy and its regions, and in other continents, such as Africa, on the basis of the commitment of the 28.»
- «But beyond money, this is a question of trust between the 27 and the United Kingdom, based on the respect of one's signature. And everyone knows that we will need this trust to create a solid relationship in the future.».[24]
UK assets
In 2017, the UK had a 16% share in the European Investment Bank (EIB) worth £8.8 billion based on data submitted by Lawyers for Britain.[25] As part of the financial settlement, the UK's liability resulting from the guarantee for the financing made by the EIB while the UK was a Member State is to be maintained and its level decreased in line with the amortisation of the EIB portfolio outstanding at the time of UK's withdrawal, at the end of which the paid-in capital of the United Kingdom in the EIB will be reimbursed to the UK.[2] In March 2018, the OBR estimated the net asset to offset the overall financial settlement at €3.5 billion.[26] This amount is to be repaid over 12 years, starting in October 2020, with 11 annual repayments of €300 million and a final repayment of €196 million.[3] The UK maintains a contingent liability in respect of the stock of outstanding EIB operations at the point of the UK’s withdrawal.[3]
The Bank of England (BoE) has invested in the European Central Bank (ECB) amounting to 14.3374% of its paid up capital, equating to €58.2 million at 1 January 2019. The BoE does not participate in any profits (or losses) of the ECB.[27] The BoE has also made loans to the ECB. The ECB set up the European Financial Stability Facility in 2010, which has a borrowing facility of €440bn and in addition used a guarantee from the European Commission and the EU Budget as collateral to borrow a further €60bn. The paid-in capital of the UK in the ECB will be reimbursed to the BoE.[2]
The UK benefits from a rebate which reduces its contribution to the EU budget. The rebate is paid a year in arrears, accordingly the 2019 rebate would be payable in 2020.[13]
The EU has considerable assets including buildings, equipment and financial instruments, and some in the UK suggested there was a potential claim by the UK for a portion of these assets.[28] Boris Johnson, the UK's Foreign Secretary at the time commenting on the Brexit "divorce bill" in May 2017, stated that the valuable EU assets the UK has paid for over the years should be properly valued, and that there were good arguments for including them in the negotiations.[29] The assets were not included in the settlement.
Agreement on scope of commitments and methods for valuation
On 11 December 2017, Theresa May confirmed that the UK and the EU had agreed “the scope of commitments, and methods for valuations and adjustments to those values.”[30]
The UK's obligation is to be fixed as a percentage of the EU's obligations calculated at the date of withdrawal in accordance with a methodology agreed in the first phase of the negotiations.
In March 2018, the UK's Office for Budget Responsibility (OBR) published the UK's economic and fiscal outlook including details of the estimated financial settlement as at 29 March 2019, the original date that the UK was to leave the EU, which it estimated at £37.1 billion (€41.4 billion).[31][26] The estimated settlement was made up of:
- £16.4bn (€18.5bn) towards the UK's contribution to the EU budget to December 2020 (after offsetting for the UK rebate);
- £18.2bn (€20.2bn) towards outstanding commitments for projects that have been signed off but not yet paid for by 2020 (The Reste à Liquider ("RAL") from successive Multiannual Financial Frameworks) to be paid up to 2028; and
- £2.5bn (€2.7bn) for other financial liabilities, being an estimate for pension liabilities of €9.5bn offset by other assets totalling €6.8bn.[26] The payments towards the pension liabilities are estimated to be made until 2064.[26]
The UK would continue to benefit from all programmes as before the withdrawal until their closure under the condition that it respects the applicable EU legal rules.[2]
While serving as Brexit Secretary, Dominic Raab said in September 2018 the UK will not pay the financial settlement to the EU in a no-deal scenario.[32]
Article 50 extensions
As the UK did not leave the EU on 29 March 2019, the UK continued to contribute to the EU as a member. Article 50 was extended until 31 October 2019 and the UK's contributions for the period from 30 March to 31 October 2019 were £5 billion, leaving an estimated £32.8 billion (€36.3 billion) remaining to be settled at 31 October 2019.[33] Article 50 was further extended to 31 January 2020 and despite additional contributions to January 2020 and favourable currency fluctuations reducing the amount payable in sterling, an increase in pension liabilities of £2.6 billion saw the estimate of the financial settlement at 31 January 2020, the date the UK left the EU, increase to £32.9 billion.[34]
The financial settlement was not binding until the UK Parliament approved the Withdrawal Agreement, which was approved on 24 January 2020.[35]
Transition period
Following approval of the Withdrawal Agreement, the UK left the EU on 31 January 2020 and entered a transition period, but continued to contribute to the EU as if it were a member.
The payment process
After December 2020, payments accrue twice a year.[34]
The first invoice was received in April 2021 for an amount of €3.8 billion payable in 4 equal instalments from the end of June 2021. The second was received in September 2021 for an amount of €8.2 billion payable in 8 equal instalments from the end of October until May 2022. The third invoice was received in April 2022 for €3.4 billion.[3]
Re-estimation
In July 2022, HM Treasury's estimate of the financial settlement when the UK left the EU on 31 January 2020 is £35.6 billion (€42.4 billion), an increase of £2.7 million since the OBR estimate in 2020.[3] The Reste à Liquider had increased from the original 2018 estimate of €20.2 billion to €23.8 billion and other financial liabilities had increased from €2.7 billion to €7.5 billion, a total increase of €8.4 billion since 2018.[3]
References
- ^ a b "The EU "divorce bill"". Full Fact. 5 May 2017. Retrieved 24 March 2019.
- ^ a b c d e f "Position paper "Essential Principles on Financial Settlement"" (PDF). 12 June 2017. Retrieved 23 March 2019.
- ^ a b c d e f g h i "European Union Finances: Statement on the implementation of the Withdrawal and Trade and Cooperation Agreements" (PDF). www.gov.uk. July 2022. Retrieved 28 July 2022.
- ^ a b c d "Brexit: the financial settlement". Parliament UK. 19 December 2019. Retrieved 12 January 2020.
- ^ "Let's give our National Health Service the £350 million the EU takes every week | LSE Digital Library". digital.library.lse.ac.uk. Retrieved 30 March 2017.
- ^ "FactCheck: do we really send £350m a week to Brussels?". blogs.channel4.com. Archived from the original on 8 July 2016. Retrieved 31 July 2016.
- ^ "David Davis suggests UK could pay for single market access". The Guardian. 1 December 2016. Retrieved 2 April 2017.
- ^ "The government's negotiating objectives for exiting the EU: PM speech". 17 January 2017. Retrieved 24 March 2019.
- ^ Henley, Jon (17 January 2017). "Key points from May's Brexit speech: what have we learned?". The Guardian. Retrieved 24 March 2019.
- ^ "Brexit: UK contributions to EU 'could continue' after exit". BBC. 11 January 2017. Retrieved 24 March 2019.
- ^ "Brexit EU guidelines: UK told settle divorce bill before talking trade deals". Sky News. 31 March 2017.
- ^ Boffey, Daniel (17 March 2017). "EU sources: May must mention UK's financial settlement in article 50 notice". Retrieved 23 March 2019.
- ^ a b Keep, Matthew (16 March 2017). "The UK's contribution to the EU budget". House of Lords.
- ^ "Brexit and the EU Budget" (PDF). House of Lords. 4 March 2017. Retrieved 2 April 2017.
- ^ "Brexit: UK 'not obliged' to pay divorce bill say peers". BBC News. 4 March 2017. Retrieved 30 August 2018.
- ^ "Prime Minister's letter to Donald Tusk triggering Article 50". 29 March 2017. Retrieved 23 March 2019.
- ^ Boffey, Daniel (29 April 2017). "EU leaders agree on tough stance at special Brexit summit". The Guardian. Retrieved 14 May 2017.
- ^ "European Council (Art. 50) guidelines for Brexit negotiations". Council of the European Union. 29 April 2017. Retrieved 14 April 2017.
- ^ Foster, Peter (29 April 2017). "EU Brexit guidelines: What's in the document, and what it really means". The Daily Telegraph. Retrieved 14 May 2017.
- ^ Roberts, Dan (1 May 2017). "May dismisses reports of frosty dinner with EU chief as 'Brussels gossip'". The Guardian. Retrieved 15 May 2017.
- ^ Mason, Rowena (11 July 2017). "European leaders can 'go whistle' over EU divorce bill, says Boris Johnson". The Guardian.
- ^ Rankin, Jennifer (30 May 2017). "Painstaking detail of Brexit process revealed in EU documents". The Guardian. Retrieved 23 June 2017.
- ^ a b "Britain is 'backtracking' on its Brexit divorce bill commitments, EU's chief negotiator warns". The Independent. 7 September 2017. Retrieved 22 September 2017.
- ^ "European Commission - PRESS RELEASES - Press release - Speech by Michel Barnier in front of the Committees of Foreign Affairs and the Committees of European Affairs of the Italian Parliament". europa.eu.
- ^ Niamh McIntyre (12 March 2017). "Brexit: UK could demand £9bn back from EU instead of paying divorce bill". The Independent. Retrieved 3 May 2017.
- ^ a b c d "Economic and fiscal outlook – March 2018". 13 March 2018. Retrieved 23 March 2019.
- ^ "Capital subscription". European Central Bank. 1 January 2019.
- ^ "UK's Brexit bill likely to be well under €60bn, says think tank". The Irish Times. 30 March 2017.
- ^ "Boris Johnson says Brussels should [not] pay 'preposterous' Brexit bill". Sky News. 13 May 2017. Retrieved 13 May 2017.
- ^ "The EU "divorce bill"". Full Fact. 15 November 2018. Retrieved 23 March 2019.
- ^ McTague, Tom (13 March 2018). "Britain's Brexit Bill Revealed £37.1B Over 45 years". Politico. Retrieved 23 March 2019.
- ^ "PM to discuss no-deal Brexit plans". BBC News. 13 September 2018.
- ^ "Fiscal risks report" (PDF). Office for Budget Responsibility. July 2019. p. 166. Retrieved 19 July 2019.
- ^ a b "Economic and fiscal outlook". Office for Budget Responsibility. 11 March 2020. pp. 116–118. Retrieved 2 January 2021.
- ^ Proctor, Kate; Boffey, Daniel (24 January 2020). "'Fantastic moment': Boris Johnson signs Brexit withdrawal deal". The Guardian – via www.theguardian.com.