Brexit divorce bill

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.[14] The report concluded that the UK had no legal obligation to make "exit" payments to the EU if there was no post-Brexit deal.[15][16]

Theresa May's letter of 29 March 2017 to President of the European Council Donald Tusk triggering Article 50 noted that she wanted "fair settlement of the UK’s rights and obligations as a departing member state, in accordance with the law and in the spirit of the United Kingdom’s continuing partnership with the EU".[17]

On 29 April 2017, the EU27 heads of state unanimously accepted[18] negotiating guidelines prepared by Donald Tusk.[19] 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.[20]

The Prime Minister insisted to President of the European Commission Jean-Claude Juncker that talks about the future UK-EU relationship should start early and that Britain did not owe any money to the EU under the current treaties.[21] Secretary of State for Foreign and Commonwealth Affairs Boris Johnson claimed that the amounts being discussed were extortionate and said that European leaders can 'go whistle' over the EU divorce bill.[22]

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][23]

Two different legal approaches arose in determining the financial element of the Brexit withdrawal agreement and (at least initially) the UK and EU negotiators differed on which would be the more appropriate.[24] David Davis said that the "UK wants to go through the Brexit bill line-by-line to work out what it owes the EU."[24] In September 2017, the European negotiator Michel Barnier, in an address to the Italian parliament noted that despite progress in each topic of the Withdrawal Agreement negotiations, major issues were remaining in each topic, including for the financial settlement, for which his goal was that:

• « 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.».[25]

In 2017, the UK had a 16% share in the European Investment Bank (EIB) worth £8.8bn based on data submitted by Lawyers for Britain.[26] 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 €3.5bn.[27]

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.[28] 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.[14]

The EU has considerable assets including buildings, equipment and financial instruments, and there is a potential claim by the UK for a portion of these assets.[29] Boris Johnson, the UK's Foreign Secretary, 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.[30]

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.”[31]

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.[2] The amount due is complex to be calculated and includes various liabilities apart from just the core EU budget. The UK is also entitled to a portion of EU assets.[1]

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).[32][27] 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.[27] The payments towards the pension liabilities are estimated to be made until 2064.[27]

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.[33]

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.[34] 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.[3]

The financial settlement was not binding until the UK Parliament approved the Withdrawal Agreement, which was approved on 24 January 2020.[35]

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.[4] The transition period ended on 31 December 2020 and based on the scheduled payments to 31 December 2020, the amount outstanding at that date will be the Reste à Liquider (RAL) plus the other financial liabilities.[4] The European Union (Withdrawal Agreement) Bill 2019–20 authorises HM Treasury to make scheduled payments up to March 2021.[4] After December 2020, payments accrue twice a year.[3]