The so-called “Brexit departure bill” is proving every bit as thorny an issue, early in the Brexit negotiations, as was expected. To recap, the EU’s position appears to be that the UK formally owes the EU some tens of billions of euros (perhaps €60-€100 billion) most of which is a combination of the payments the UK was due to make to the EU budget to 2020, payments for structural funds out into the mid-2020s that the EU says have already been promised to member states, and guarantees the EU has provided on loans. There has been quite a bit of other discussion about the pensions of European Commission staff and mortgages on buildings, but the amounts at stake from those sources are much smaller than the earlier items above.
The UK’s position is that it probably formally owes approximately nothing in net terms — there may be some minor items the UK owes the EU and balancing items that the EU owes the UK (such as shares in capital allocated to EU finance enterprises or the asset value of buildings), but these are likely to net out to around zilch. On the other hand, UK negotiators say that if the EU recognises that its demands are political in nature, the UK would be willing to consider making political payments to secure good will as part of some overall deal.
The EU has apparently been pressing the UK for clarity on its position, including specifically wanting the UK to make a counter-offer for how much it is willing to pay. Many UK Brexit commentators have criticised the UK government for not setting out a detailed proposal. Others have suggested that the matter should be resolved by the UK and EU going to international arbitration.
What the EU and the various critics of the UK government seem not to grasp is that the UK’s reluctance to express too much clarity on what it thinks it owes is not because we have any desire not to pay what owe or to pay less. It is because the UK wants to pay more than it thinks it owes. Once a UK proposal becomes publicly known, it will become politically very difficult for the UK to agree to pay more than that. What the UK wants is to secure an overall deal in which it offers some extra money, at the end, to close the deal with any parties who feel put out or think the deal needs sweetening. The likely result of too much clarity will be the EU getting less money, not more.
I (along with many Britons, I guess) am keen that the UK should pay anything it actually owes to the EU. Britain is not a country that defaults on its obligations. I was initially sympathetic to the idea that there might be various things we actually did owe. Perhaps some pensions. Perhaps some financing of buildings. Of course there would have been corresponding assets, so it wasn’t obvious that there would be any net liability, but I was perfectly willing for us to pay any such net liability if it arose.
Sympathetic though I was, I have not thus far encountered any compelling argument that we do, in fact, owe anything of that sort. The EU, as far as I am aware, has always operated on a pay-as-you-go basis for whoever happened to be members at the time. I’m not aware of the UK getting any discount on its EU contributions because of pension liabilities accrued before the UK became a member, for example. As far as I am aware, the UK’s contributions have funded the pensions of those that worked for European institutions before the UK joined. And the same has applied to other members joining the EU. The notion that we owe monies when we leave even though we received no discount when we joined appears to me, as things stand (though I’m willing to be corrected if it does turn out we have had a discount in the past), to be transparently a matter of inventing a principle so as to try to extract money from us.
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What we absolutely should not accept is that we owe monies for payments the EU intends to make after we leave. The EU set up a notice period for leaving — two years. We should not accept we owe any payments after that. The EU may well have made plans for spending on this or that based on the assumption the UK would be a member. Well, the UK isn’t going to be a member any more, so those plans may have to change. We don’t owe it to the EU to keep paying for those things.
On the other side, the UK has made contributions, over many years, to the build-up of many organisations within the EU. What is the enterprise value of the many EU directorates general or regulatory authorities, that UK contributions have helped to fund? Those institutions will carry on long after the UK has left, providing value to EU members that UK contributions helped create. But we should not expect to charge the EU, year after year, some dividend as a return for our investment in those institutions. We’re leaving, so they’re nothing to do with us any more. In exactly the same way, the EU’s future spending plans after we leave are nothing to do with us either and we should not accept we owe anything for them whatever — not one single euro.
But just because we should not accept we owe anything for such schemes, it does not follow that we should not pay anything. The UK’s leaving the EU undoubtedly creates a financial inconvenience. The most obvious such inconvenience concerns the 2014-2020 Multiannual Financial Framework (MFF). If the UK leaves in 2019, and when it does so ceases EU contributions immediately, that will leave the MFF short a couple of tens of billions of euros. It should be very straightforward for the UK to agree some “transitional arrangement” fig leaf that allows us to continue to contribute exactly the same amount, up to 2020, as we would have done as EU members. That isn’t because we owe the money. It’s because we want to pay it because we’re reasonable people who appreciate the financial implications of our leaving and we’re happy to help out as part of a pragmatic overall arrangement.
Maybe we’d be willing to go further, and pay a bit even in 2021 and 2022, if the quality and nature of transitional arrangements in those years made doing so seem sensible.
The UK paying in 2019 and 2020 would be some tens of billions of euros. If we paid out to 2022, that could start to approach €40 billion or even €50 billion. With a few billion net formally owed, we might even get close to the €60 billion figures discussed. But next to none of that can be paid on the basis that the UK owes it.
If the EU is smart and the UK is allowed to determine how much it pays as part of an overall package that includes a trade deal and two or three years of bridging/transitional arrangements, there’s every chance the UK will agree to pay several tens of billions of euros. If the UK is forced to state a position from the start and to focus purely upon accepting paying what it owes, that position is likely to be approximately €0.
I suspect we owe virtually nothing, in net terms. We will very probably be willing to pay more than we think we owe — tens of billions of euros more. The EU and British commentators need to take away this key point: Our reluctance to be definitive is because we want to pay more than we think we owe, not because we want to pay less.