Economic Agenda
UK holds the cards in EU ‘divorce bill’ row
Liam Halligan
The EU’s Brexit negotiators were apparently “flabbergasted” after their British counterparts launched a legal critique of the Brexit “divorce bill” last week.
UK civil servants spent three hours on a detailed line-by-line rebuttal of EU demands for a €100bn (£92bn) settlement. “It did not do down well,” said one Brussels source.
These Brexit negotiations just got serious – and not a moment too soon. The UK is under no legal obligation whatsoever to pay the EU to leave. I’ve never argued we should pay nothing and am not now. We want to exit on good terms, after all.
Yet when it comes to the financial side of these Article 50 talks, it is Britain, not the cash-strapped EU, that holds most of the cards.
The numbers Michel Barnier has been floating are ridiculous – beyond extortionate. There is also nothing sacred about the EU chief negotiator’s insistence we agree a multi-billion-pound payment before discussing anything else – citizens’ rights or trade, for instance.
Britain’s strength reflects not only the legal position but also the reality that Brexit leaves a gaping hole in the EU budget
How typical of the unaccountable, grotesquely self-important bureaucracy the European Commission has become that it insists on settling the question of more money for its own ludicrously inflated running costs before discussing issues of huge importance to citizens and businesses of the UK and the EU.
And how typical of our jaundiced broadcasters that such an insistence is taken for granted, accepted without question as eminently reasonable, while the UK is derided for pushing back.
Of course Britain should push back. We are talking about tens of billions of pounds, representing the hard work and tax payments of countless ordinary firms and households.
That amounts to dozens of hospitals, hundreds of new schools and thousands of teachers and nurses foregone.
“The Commission has set out its position and we have a duty to our taxpayers to interrogate it rigorously,” said David Davis, the Brexit Secretary, last Thursday. Damn right. This is real money, real public services. It is time the Eurocrats understood Britain need not pay a penny-bean. And we don’t need a trade deal to trade with the EU either.
The EU budget is set over seven-year cycles, currently covering 2014-20. It is because Brexit is scheduled for 2019, in the midst of such a period, that the notion of a “divorce bill” has arisen.
Estimates range across a broad spectrum. The Bruegel European think tank puts the net payment at €25bn to €65bn, once Britain receives its share of EU assets and repaid EU loans.
The Institute of Chartered Accountants reckons £5bn to £30bn, as the UK should not be liable for spending not committed to until after its departure.
In March 2017, a House of Lords report judged that the UK is not legally obliged to make any exit payment.
Britain’s strength reflects not only the legal position but also the reality that Brexit leaves a gaping hole in the EU budget.
The UK is the EU’s second-largest contributor. Since 2000, Britain has paid net €100bn to Brussels. Two weeks after the June 2016 referendum, Standard and Poor’s (S&P) downgraded the EU’s credit rating from AAA to AA. “After the decision by the UK electorate, we have reassessed our opinion of cohesion within the EU,” said the ratings agency.
Four months ago, S&P added that the EU would “come under pressure in an adverse scenario” if the UK did not pay at least €60bn.
British negotiators decided, correctly, not to publish an initial position paper on the “divorce bill” but to criticise the EU’s proposal instead. This reflected the reality that the strategic deployment of financial concessions as the talks progress is the best way to exert leverage over the EU.
Just as it makes complete sense for Barnier to demand that payment is agreed up front, it makes complete sense for the UK to resist such an agreement. This is obvious to anyone with the remotest idea of how to negotiate and with a modicum of respect for public money.
Yet Britain’s actions are presented, not least by taxpayer-funded journalists, in the worst possible light. Some would refuse point blank to pay anything to the EU. Certainly, the best way to secure favourable treatment for UK exports is to negotiate and lower our trade barriers to EU exports in return – with powerful EU export lobbies pressuring Brussels to concede.
And, in theory, if this divorce payment is designed to “buy” frictionless trade, the net payment should be in the UK’s favour, seeing as the EU sells much more to Britain than vice versa.
While all this is true, it was Britain that voted to leave – so, to depart amicably, the UK should be prepared to discuss payment.
The actual sum, though, should be finalised only as the negotiations close, then paid over a number of years, with the total reflecting the degree of cooperation shown by the EU between now and March 2019.
This “divorce bill” row isn’t surprising. Money is a highly visible, emotive issue. One side’s cash loss is, by definition, the other side’s gain.
Starting the Article 50 talks with money, when both sides are trying to score the first victory, was always going to bring deadlock, which is no doubt want Barnier wanted.
In 2016, the UK paid net £8.6bn to the EU. After March 2019, any settlement could be staged, as part of a one- or two-year transition period. The payments could be partly offset by the net tariff revenues the UK would receive if we were trading under World Trade Organisation rules, with no free-trade agreement.
To make progress, these Article 50 talks need to be robust – and that’s what we saw last week. Yet they need not be acrimonious – and cash payments, as long as they’re reasonable, can help smooth the way.
Swipe between articles
