Brexit: How Much Does the UK Owe the EU?
Because there is no clause in article 50 or any other legal document, no other similar case as Britain’s withdrawal from the EU, the logical answer to the question above would be nothing. This is what many British ministers also have argued. But for the European Commission, and the Brussels-based economic think tank Bruegel, the UK’s EU exit bill amounts to a staggering €100bn—or anything from €86bn to €113bn. Of course, the final bill will be negotiated between the two parties so that they come to a mutual agreement. But, what is clear is that budgetary contributions would need to be carefully considered by both parties because that would also define the general climate of the wider negotiations. A rigid position by the UK might damage its negotiations and have political implications. The EU also needs to tread carefully, so that they manage to extract a “hefty” compensation without a total breakdown of the negotiations.
European Union Committee report
According to the House of Lords European Union Committee’s report, titled “Brexit and the EU Budget,” published on 4 March 2017, the “budget is going to be a contentious early issue during the UK’s negotiations over leaving the EU” (3). The report argues that because article 50 states that it is possible not to reach an agreement after the two-year framework, and all EU law, including financial contributions, will cease to apply, then no EU institution can enforce any obligation to make financial contributions (3). This would be damaging for the 27 Member States which would need to deal with the budget hole—pay more into the budget or draw less from it—and the UK which might find it difficult to reach friendly agreements on other issues during the negotiations.
The report indicates that “Nonetheless, the ultimate possibility of the UK walking away from negotiations without incurring financial contributions provides an important context.” While the House of Lords does recognise that it is legally possible to leave without paying anything, it does point out that an orderly exit is favourable and reaching an agreement on the issue of the budget would be the driving force behind making Brexit a success.
The Financial Times had initially published two reports indicating that the UK would be asked to pay either an estimated €20bn or an estimated €60bn. The EU committee’s report stated that the committee didn’t endorse a particular figure and cautioned against considering any of them in isolation: “While the legal advice we have received differed, the stronger argument suggests that the UK will not be strictly obliged, as a matter of law, to render any payments at all after leaving.” But it also clarified that: “there are various reasons why the UK and EU may elect to negotiate continued payments, including the desire to agree an ‘implementation period’, or transitional arrangement, instead of the ‘cliff-edge’ that might otherwise result from Brexit.”
UK’s contributions to the EU budget
According to the report, the “UK provides approximately 12% of the resources available to the EU budget, and is also a significant net contributor.” Because the UK pays more into the EU budget than it actually gets out, withdrawing from the EU will leave a considerable financial gap. According to the Telegraph, in 2015, the UK paid £12.9bn, a reduced contribution because of a “rebate” (the ‘Fontainebleau abatement’), which is applied annually after a deal that Margaret Thatcher negotiated in 1984. The UK rebate is a mechanism applied to lower the UK’s contribution to the EU budget by reimbursing 66% of the country’s budgetary imbalance—the difference between payments and receipts. The UK’s contributions aren’t the same every year, and they have increased the recent years. The figure of £12.9bn, which amounts to £35m-a-day, is also much less than the £55m-a-day figure given by Brexit campaigners last summer.
In terms of what the UK gets back from the EU budget, the Treasury says, for example, that in 2015, the total EU payments to the UK were £4.4bn. This involves contributions in the form of subsidies and grants. Private organisations got an added £1.4bn in 2013 (the most recent recorded year), something that shows that the UK gets approximately £6bn a year. It is important to note that £1bn of British money paid into the EU budget is spent on international aid.
As it stands, Britain is the second biggest contributor to the EU budget behind Germany. It is obvious that the UK’s withdrawal isn’t a desirable event for the many smaller economies that don’t contribute as much. But when one divides each contributor’s payment by the number of people in the country, then Britain falls to the eighth place. According to the Telegraph, the Dutch are the biggest payers: “every one of them sends almost four times as much to Brussels.”
Divorce or leaving the club?
Another report by the think tank Bruegel, makes an interesting distinction between understanding Brexit as a divorce or a cancellation of a club membership, an important point which would define the size of the Brexit bill. If it is considered a membership, then the UK would have to pay its outstanding membership fees and have no claims on EU assets, but if it’s a divorce, “both assets and liabilities would have to be split.”
The Bruegel report calculated the EU’s liabilities and commitments to €724bn by the end of 2018. If the UK’s share is 12%, this “would amount to a gross liability of €86.9 billion.” Some other numbers included: “EU assets and contingent claims of €192.6 billion, giving a possible share of €17.7 billion for the UK under the divorce scenario. We also compute EU spending commitments in the UK (corresponding to the €580 billion EU-wide post-Brexit spending commitments) amounting to €28.9bn, plus a rebate of €4.6 billion after the UK’s contribution to the EU’s budget in its last membership.”
The Brussels think tank pointed out that the Brexit bill is the least important part of the negotiations, but settling this first could be a “prerequisite for the more meaningful discussions on the new EU-UK economic relationship after Brexit.” They did underline that “extreme positions on the Brexit bill” including an either large payment or no payment at all by the UK, “might derail the negotiations.”
While the UK remains silent on the exact amount that needs to be paid—although Theresa May has mentioned that paying nothing is probably a good starting point—the UK’s financial commitments are increasingly becoming a heated subject, especially for journalists and politicians. What is slowly becoming clearer—and again this should not be surprising—is the real, and cold face of Brussels-based bureaucracy.