Explanatory Notes

Financial implications of the Bill

595 The only provisions of the Bill that have immediate financial implications are those that relate to the financial settlement and the IMA. The exercise of some of the delegated powers contained in the Bill, particularly with respect to the citizens’ rights provisions and the Other Separation Issues, are likely to result in associated expenditure being incurred.

596 Clause 20 makes provision for the UK to fulfil its financial obligations in the Withdrawal Agreement until March 2021, after which the majority of payments will be made through supply. A definitive value on the financial settlement in relation to the UK’s withdrawal from the EU is, by its very nature, dependent on future events, so a precise figure cannot be given. Following the outline agreement on the financial settlement in December 2017, the Government used publicly available European Commission data to set out a reasonable central estimate of the settlement of £35-39 billion.

597 The National Audit Office (NAO) subsequently produced a report concluding that this was a reasonable central estimate. The Office for Budgetary Responsibility has also published their independent estimate for the financial settlement in October 2018 and forecast that the settlement would be worth £38.7 billion.1 This was predicated on the UK leaving the EU on 29 March 2019. As a result of the extension of Article 50, the UK continued to contribute to the EU Budget as a Member State after 29 March 2019. While this reduces the size of the settlement, it does not change the overall amount that the UK transfers to the EU. Furthermore, these payments are enabled by this legislation but not determined by the Bill.

598 The majority of these payments will be made under clause 20, but there are instances where a different financial authority may be used. For example, the International Development Act 2002 section 4 authority would continue to be used for payments related to the European Development Fund.

599 Part 2 of the Bill establishes a general implementation provision to ensure the proper implementation of Article 4 of the Withdrawal Agreement so its provisions produce the same legal effect in domestic law as they would in the EU. The Impact Assessment for the Bill sets out the costs and benefits of implementing each aspect of the Withdrawal Agreement through legislation, a summary of which is provided here. As the Withdrawal Agreement provides for the Joint Committee to make some amendments to the Agreement, in certain limited cases, the analysis is not an assessment of the full Withdrawal Agreement which has been reached between the UK and the EU.

600 The exercise of certain delegated powers in Part 3 of the Bill is likely to result in expenditure being incurred. This is particularly likely where a power is being exercised for the purpose of creating a new scheme relating to residence. For example, clause 8 provides for the power to make regulations creating a registration scheme for frontier workers, and clause 11 provides for the power to make regulations creating an appeals mechanism for citizens’ rights immigration decisions. Both the creation of a registration scheme and an appeals mechanism are likely to incur expenditure.

601 Clause 8 also covers issuing of documents related to registration of frontier workers; this will also incur expenditure. Spending departments may decide to treat persons on the pathway to settled status (limited leave to remain) differently with regards to their access to benefits and services. If departments decide to carry out eligibility tests there will likely be additional expenditure required to carry out these assessments.

602 It is not possible to provide an exact estimate of expenditure under Part 3 of the Bill at this stage. Any statutory instruments made under the powers in that part of the Bill will be accompanied by an explanatory memorandum which will set out financial implications in detail.

603 There will also be costs associated with the establishment and ongoing operation of the IMA, starting in the 2019/20 financial year. Given the difficulty in estimating the number of inquiries and legal actions the authority might annually launch, as well as complaints it might receive, these costs cannot be estimated with precision or certainty at this stage. An approach based on examining the precedent of authorities with similar powers has been used to determine an indicative range for the costs associated with the establishment and for estimating the ongoing running costs. It should be noted that these are very much indicative at this stage.

604 In accordance with this methodology, the total initial cost of setting-up the IMA is expected to be £36.5 million. In the first year, this is estimated to be £6.5 million and £30 million in the second year. The actual figure will depend on when the IMA becomes operational.

605 Although the annual running costs for the IMA will be largely dependent on the number of complaints it receives, comparisons with existing monitoring authorities that have a similar range of powers suggest that the biggest costs will arise from staff salaries, followed by estates and IT provisions. Using precedents, the total annual running costs for the IMA are estimated to be in the region of £14.86 million, broken down into the following areas:

a. staff £7.1 million

b. board salaries £0.2 million

c. estates and accommodation £0.75 million

d. IT systems £0.45 million

e. legal £1.95 million

f. other £0.98 million

g. contingency £3.43 million

606 The overall projected cost for the IMA over a 10 year period is expected to be £146 million.

607 Clauses 18 and 19 create delegated powers to implement Part 3 of the Withdrawal Agreement and Part 3 of the EEA EFTA Separation Agreement. As such, they have no immediate financial implications. Exercise of these delegated powers has the potential to involve expenditure, as the powers can make any provision that can be made by an Act of Parliament.

608 The parts of the relevant separation Agreements to do with the Other Separation Issues are about maintaining the status quo while procedures wind down, so the Government does not generally anticipate any significant expenditure being required. One example where expenditure is expected is in relation to intellectual property, where in place of EU trade marks, registered and unregistered Community designs and Community plant variety rights, the Government will provide comparable UK trade marks, design and plant variety rights at the end of the implementation period. The UK rights will be granted automatically and for free.

609 However, once they require renewal, rights holders will need to pay the relevant UK renewal fees if they wish to keep their UK rights in force. The estimated total expenditure for rights holders renewing these intellectual property rights over a period of 10 years is expected to be:

a. renewing EU trade marks £21 million

b. renewing designs rights £4.8 million

c. renewing international registrations £1.9 million

610 Beyond this example, as the regulations under clauses 18 and 19 do not need to be in place until the end of the implementation period and as the costs will depend on events between now and then, it is not possible at this stage to provide an exact estimate of likely expenditure, but, as noted above, the Government does not expect it to be significant. When statutory instruments are made under these powers in the Bill the accompanying explanatory memorandum will set out any financial implications in detail.

611 The Protocol will be legislated for in the Bill by:

a. giving effect to the commitment to ensure that no diminution of rights, safeguards and equality of opportunity as set out in the Rights, Safeguards and Equality of Opportunity section of the Belfast (Good Friday) Agreement 1998 results from the UK’s withdrawal from the EU by making amendments to the Northern Ireland Act 1998, ensuring that the Northern Ireland Human Rights Commission and the Equality Commission for Northern Ireland have the appropriate statutory functions to monitor, report on and enforce this commitment; and

b. creating a delegated power (clauses 21 & 22) to implement the necessary arrangements as required by the Protocol. As such, the delegated power will have no immediate financial implications.

612 Exercise of this delegated power (clauses 21 & 22) will involve expenditure. As the secondary legislation on the Protocol does not need to be in place until the end of the implementation period and requires further work on the practical operation of the regime, it is not possible at this stage to provide an exact estimate. When statutory instruments are made under these powers in the Bill the accompanying explanatory memorandum will set out any financial implications in detail.

613 Clause 28 extends the ancillary fee-charging power in Schedule 4, Part 1 of the EU (Withdrawal) Act 2018 so it can be used in connection with regulations made under the Other Separation Issues’ powers and powers in connection with the Protocol. This allows regulations to make provision for the charging of fees in connection with a function a public authority has been given under those powers. As set out above, it is not possible to provide an exact estimate of likely expenditure that would arise under these powers but the accompanying explanatory memorandums to the statutory instruments will set out the details in full.

614 Given that the purpose of the implementation period provisions at Part 1 and Part 4 of the Bill are to maintain the status quo, it is unlikely that the saving of the ECA at 1, the glosses at 2 and the ability to make exception to the glosses at 3 will result in increased expenditure. It is possible that the EU signing a new international agreement during the implementation period, which would apply to the UK, could have potential financial implications.

1 Economic and fiscal outlook ’, OBR, October 2018.

 

Prepared 19th December 2019