Main financial provision

46 The UK and the EU have agreed a financial settlement which covers the payments the UK has committed to making to the EU, and the payments that the UK will receive from the EU. The financial settlement does not address any other costs arising as a consequence of the UK exiting the EU, such as the costs of new administrative arrangements that may need to be put in place by either the UK or the EU, or in relation to the future relationship between the UK and the EU.

47 The methodology for the financial settlement is described in the Joint Report from the Negotiators of the European Union and the United Kingdom Government that was published in December 2017. The Joint Report states that the implementation of the agreed methodology will be based on the following principles:

a. the first principle is that the UK will not finance any commitments that do not require funding from Member States, and will receive a share of any financial benefits that it would have received had it remained a Member State.

b. the second principle establishes the UK’s share of the EU’s obligations where they are a component of the settlement. For 2019-20, the current methodology will be used for determining the UK’s annual contributions to the EU budget. For payments after 2020, the UK’s share will be the average of its share of the EU budget (taking into account the rebate) over 2014-20.

c. the third principle is that the UK will only be required to make payments as they fall due. The UK will not be required to make payments earlier than would have been the case had it remained a Member State, except for a few specific cases where it might be in the interest of both sides to settle these early. This is particularly relevant for pensions, given that the costs will decline steadily over a long-term period.

48 The Withdrawal Agreement sets out the methodology for calculating the payments to, and receipts from, the EU. It does not set out the final sum that will be paid to the EU. The Withdrawal Agreement does not provide for discretion in the calculation of payments after withdrawal, other than the possible early settlement of certain obligations.

49 To allow the UK Government to meet its international commitments set out in the Withdrawal Agreement, the Bill contains a legislative mechanism to authorise payment of those financial obligations.

50 The legislative mechanism in the Bill that allows for Withdrawal Agreement obligations to be met during the period from exit day until 31 March 2021 is a ‘standing service provision’. This means that payments will be made from the UK’s Consolidated Fund, or, if the Treasury so decides, from the National Loans Fund. Spending under this finance authority would wind down as obligations naturally expire under the terms of the Withdrawal Agreement. After 31 March 2021, all obligations payable under the Withdrawal Agreement (other than those relating to the traditional own resources of the EU, such as customs duties which UK authorities have collected on behalf of the EU, which will continue to be paid pursuant to the standing service provision) will be met through supply. The date upon which the standing service provision will cease to apply may be altered by regulations, subject to the affirmative resolution procedure in the House of Commons.

51 The Bill also provides that receipts from the EU (e.g. the reimbursement to the UK of the paid-in subscribed capital of the European Investment Bank) and received by a Minister of the Crown or a government department are to be paid into the Consolidated Fund, or if the Treasury so decides, the National Loans Fund.

52 The Bill allows payments to be made only in order to meet financial commitments that are required by the Withdrawal Agreement. This finance authority cannot be used for payments relating to the future relationship between the UK and the EU.