The progress of the UK's negotiations on EU withdrawal Contents

2Progress of the negotiations

Citizens’ rights

7.Citizens’ rights are one of the three areas in phase one that EU negotiators have said require sufficient progress before the talks can move on to phase two. After each round of negotiations, the UK and the EU have published a joint technical note summarising and comparing the UK and EU positions on citizens’ rights.11

8.On Monday 17 October, in his statement updating the House of Commons on the fifth round of negotiations in September, the Secretary of State for Exiting the EU summarised the negotiations on citizens’ rights.12 He said that there had been “further progress” towards giving both UK citizens in the EU27 and EU citizens in the UK “the greatest possible legal certainty about the future.” He listed the areas of agreement: the criteria for residence rights; the right to work and to own a business; social security rights; rights for current family members; reciprocal healthcare rights; the rights of frontier workers; and the need to streamline and reduce the cost of the process for securing settled status in the UK. He also identified areas where there was still disagreement: recognition of professional qualifications; voting rights in local elections; rights of onward movement for UK citizens already resident in the EU27 (and rights of return); rights to bring in future family members; and the export of a range of benefits.13 Mr Davis told this Committee that some of the disagreements related to the distinction between phase one and phase two, for example on professional qualifications:

Whenever we try to talk about, let us say, something like protecting the professional qualifications of somebody who is studying for that qualification, we say, “We should protect them. That is protecting their lives as they are now.” The Commission is really quite picky about this and says, “No, that is the future relationship.”14

He said there was hope that some areas could be concluded, “If not now, it may be released by going to the forward arrangements.”15

9.In the press conference after the fifth round of negotiations on 12 October, Michael Barnier noted that the UK had informed his team of its intention to put in place a simplified process for EU citizens to establish their status in the UK, adding:

We will study attentively the practical details of this procedure, which should really be simple for citizens.16

His conclusion, following that round of negotiations, was that “as things stand at present, I am not able to recommend to the European Council next week to open discussions on the future relationship.”17

Touching distance of a deal

10.On 19 October, in an email to EU citizens in the UK ahead of the European Council, the Prime Minister said “I have been clear throughout this process that citizens’ rights are my first priority” and that:

When we started this process, some accused us of treating EU nationals as bargaining chips. Nothing could have been further from the truth. EU citizens who have made their lives in the UK have made a huge contribution to our country. And we want them and their families to stay. I couldn’t be clearer: EU citizens living lawfully in the UK today will be able to stay.18

11.The Prime Minister said that the agreement “will provide guarantees that the rights of those UK nationals currently living in the EU, and EU citizens currently living in the UK, will not diverge over time”.19 In evidence to this Committee on 25 October, the Secretary of State agreed with the Prime Minister that the negotiations were within “touching distance” of a deal on citizens’ rights.20 When asked what might change between now and December to enable the EU to declare that “sufficient progress” has been made, to enable negotiations to move on to phase two, the Secretary of State said on citizens’ rights:

We are going to have to work very hard on concluding the citizenship element. That has huge political leverage among the 27.21

12.Jane Golding, Chair of British in Europe, in evidence to the House of Lords EU Select Committee on 31 October, disagreed a deal was close and said:

Although we do not see a solution within touching distance, we think that some progress has been made on technical issues, particularly with regard to non-economically active people and reciprocal healthcare and social security. Much less progress has been made on working citizens—on both sides, obviously. It is a little known fact that around only 21% of British citizens in the EU are over 65, so this is a very important issue for us.22

13.The 3million and British in Europe, campaigning groups for EU nationals in the UK and UK nationals in the EU, have highlighted where they would like to see progress from both sides. They have identified three obstacles in the EU’s position:

14.With regard to the UK position, they have listed two fundamental stumbling blocks:

The 3million and British in Europe remain concerned that any decision on sufficient progress needs to include “clarity as regards the registration procedure and criteria to be applied by the UK to EU citizens in the UK.”25

15.In addition, they are concerned that if discussion moves on to phase two matters before there has been complete agreement on all the key issues in phase one, then citizens’ rights risk becoming “bargaining chips” again. They have asked that any agreement on citizens’ rights “must be protected so that it cannot be opened up later for use as leverage to gain some collateral benefit.”26

16.We welcome the fact that the UK and the EU have prioritised securing an agreement on citizens’ rights. We regret that it has not proved possible to conclude this agreement yet, with the consequence that there is a lack of clarity for EU citizens in the UK and UK citizens in the EU—more than four million people. Together with the prospect that “nothing is agreed until everything is agreed” this creates further doubt about what kind of legal guarantees UK citizens in the EU and EU citizens in the UK and their families will have about their status.

17.We are disappointed by the Commission’s stance on the recognition of the professional qualifications of UK citizens in the EU. Such inflexibility is contributing to unnecessary uncertainty for millions of people in the UK and Europe. We believe greater precedence should be given to the impact that the lack of early agreement on this issue is having on large numbers of citizens.

18.Notwithstanding that the phasing of the negotiations was accepted, we remain unpersuaded that there is any need to link agreement on citizens’ rights to issues concerning Ireland and finance. Both sides should announce when they reach agreement on this that, come what may, the agreement on people is in perpetuity, so that 4.5 million citizens can plan their lives ahead. We urge both sides to reconsider this so that people really do come first.

Enforcing citizens’ rights

19.The question of how the rights of EU citizens, as set out in the Withdrawal Agreement, should be enforced once the UK leaves the EU remains unresolved. In his statement to the House of Commons on 17 October, the Secretary of State said the discussions had included ways in which we can give “confidence to European citizens living in the UK that they will be able to directly enforce their rights—as set out in the Agreement—in UK courts.”27 Before this Committee, he explained that one barrier to progress was “the very fundamental area of the European Court” and said that the UK Government had a solution that it hopes will be acceptable to the European Commission.28 At the press conference following the fifth round of negotiations, Michel Barnier said that there were two common objectives: for the Withdrawal Agreement to have direct effect, which is essential to guarantee the rights to be of all citizens in the long-term, and for the interpretation of these rights to be fully consistent in the EU and in the UK. Michel Barnier said “This means for us the role of the European Court of Justice.”29 We note that the joint technical paper that sets out the areas where both sides agree and disagree on matters discussed does not provide any information on the role of the CJEU.30

20.The role of the CJEU in enabling EU citizens in the UK to enforce their rights is clearly an issue of dispute. We encourage the Government and the EU to negotiate a mutually acceptable mechanism. We heard during our inquiry on the European Union (Withdrawal) Bill that there was no convincing precedent in the world for what the EU proposes and concluded in our report that it was not appropriate for the CJEU to continue to have jurisdiction in the UK to enforce citizens’ rights after the UK has left the EU. However, a body could be established with representation from both sides to ensure that agreed rights were consistently interpreted after the UK’s exit. We encourage the UK Government to make a concrete proposal to the EU on the nature and location of the joint body that would have oversight of UK and EU citizens’ rights under any Withdrawal Agreement. We believe that these rights should be enshrined in a binding agreement.

Registering EU citizens in the UK and “settled status”

21.Our predecessor Committee considered the process for EU citizens to apply for permanent residence documents in the UK. The Committee’s report, published in March 2017, commented on the complexity of the process and the ability of the Home Office to manage the number of applications for permanent residence documents made after the referendum.31

22.In June 2017, the UK policy paper on safeguarding the position of EU citizens living in the UK and UK nationals living in the EU acknowledged that, under free movement rules, EU citizens did not need EU documentation to prove they were exercising treaty rights; nor did they need permanent residence to secure their status after the UK leaves the EU.32 Instead, the UK was introducing a new category of “settled status” for qualifying EU citizens in the UK. Individuals would have to apply for the new residence status and would be eligible to apply as long as they were resident in the UK, had been so continuously for five years, and had been resident in the UK before the specified cut-off date. They would receive documentation to enable them “to carry on living here lawfully”, and to demonstrate their status to anyone who requires confirmation of their right to reside in the UK, such as a possible employer.33

23.The Secretary of State said that those who already have permanent residence documents will not need to go through the full application process again, but will be able to exchange their permanent residence document for the new “settled status”.34 Furthermore, he told the Committee that he was dissatisfied with the permanent residence procedure, describing the 85 page form as “daft”, and that he wanted to make the process easy and cheap.35 In evidence to the Home Affairs Committee on 17 October 2017, Rt Hon. Amber Rudd MP, Home Secretary, said the Home Office had started working on preparations for a new online system for EU citizens to apply for settled status in the UK, which would be “up and running” by the end of 2018.36

24.It is the Government’s intention that the UK will leave the EU at the end of March 2019. If the new system is “up and running” at the end of 2018, this would leave only three months for EU citizens in the UK to apply and receive proof of their new “settled status” unless the period is extended by a transitional arrangement. The Home Secretary has said the system is intended to manage the potential 3 million applications, from the end of 2018 and through any transition period, and that the Home Office is recruiting extra staff to assist this.37 In the twelve-month period from Q3 2016 to Q2 2017, the Home Office received 340,000 applications for permanent residence certificates.38 The average time for processing a permanent residence certificate application in Q4 2016 was 116 days.39

25.On 7 November, the Government published a Technical Note on Citizens’ Rights–Administrative Procedures in the UK giving more information on the new online system for applications for the new status as defined in the Withdrawal Agreement. The note goes some way to address the complexities of the process. On one hand it clearly states that “there is no suggestion that those lawfully here will be required to leave on the day we exit the EU” but it also states that settled status will be “a condition for lawful residence in the UK.”40 So there will be a time period where not everyone who needs to be able to prove their status to the UK authorities, employers, service providers, etc. will be registered and, therefore, able to do so.

26.To address this, the note says “those currently resident will be given sufficient time after exit to make their application”.41 The note has two proposals to increase the timeframe for registration and it is clear that the registration process continues during the implementation period. First, it says that individuals will be able to make an application for “around 2 years after the UK’s exit from the EU.” Secondly, it says that “Subject to getting an early agreement with the EU” it will set up a “voluntary application process before we leave the EU” and the “voluntary scheme will sit alongside any existing EU law rights, until those rights fall away.”42 The UK policy paper on citizens’ rights published in June 2017 had said that there was no need for EU citizens to apply for “settled status” before the UK leaves the EU, but that the new application system would “enable those who wish to do so to get their new status at their earliest convenience.”43

27.The response from the European Parliament Brexit Steering Group (BSG) to the UK’s Technical Note also drew attention to the administrative procedure for settled status. The BSG response said that the procedure: must be an automatic process in the form of a simple declaration and not an application which introduces any kind of conditionality (e.g. a pro-active ‘criminality check’); enable families to make one joint declaration; place the burden of proof on the UK authorities to challenge the declaration on a case-by-case basis and in line with EU law; and be cost-free. Furthermore, it said the procedure should be:

a system that can only enter into force after any transition period, if requested and agreed, has concluded. Before that, the freedom of movement applies.44

28.The 3million campaign group also responded to the publication of the technical note, highlighting 25 sections of the note that concerned them, such as the introduction of a fee and the criminality checks.45 They also compared the technical note to their own proposal for an alternative to “settled status”.46

29.We welcome the Government’s acceptance that the current system for applying for permanent residence certificates is “not fit to deal with the situation after we leave the EU”, and the Secretary of State’s acknowledgement that a new system will not ask applicants to complete an 85-page form. Any new online system for enabling EU residents to register with the UK Government must be simple and straightforward and must enable both adults and children to be easily registered.47

30.The Government is designing a new system for EU citizens in the UK to make an application online to gain the proposed “settled status”. We note that this system is being developed “from scratch” and it is not anticipated to be operational until the end of 2018, only three months before the UK leaves the EU in March 2019. The new system has to be able to cope with potentially three million applications. Therefore, a period after March 2019 is vital to enable EU citizens in the UK to apply for settled status and we welcome the Government’s commitment that EU citizens will still be able to apply for settled status for two years after the UK leaves the EU. The Government has said that obtaining documentation to show their settled status will enable EU citizens who are resident here to continue to do so lawfully but there needs to be early clarification on what that documentation will consist of. If however the processing of applications continues after the two year implementation period then there will be a proportion of EU citizens in the UK unable to demonstrate their settled status and therefore their right to live and work in the UK.

Citizens’ rights and no deal

31.The reciprocal rights for EU citizens in the UK will fall away when the UK leaves the EU. This means EU states’ obligations to the UK and its citizens will also fall away. As such “obligations beyond that time would only exist if they were agreed between the EU and the UK as part of the negotiations that have recently commenced”.48 A unilateral solution for the UK cannot provide for those areas which require a reciprocal arrangement.49 In the absence of an agreement, the UK would have to decide how it would address the status of EU citizens in the UK, what legislation it would introduce to protect their rights and how those rights would be enforced. The UK could use powers in the European Union (Withdrawal) Bill to maintain, modify, limit or remove rights which domestic law presently grants to EU nationals.50 The timing and manner of any no deal outcome will be relevant for how much progress has been made in registering the three million EU citizens in the UK.51 Business groups, such as the Institute of Directors, have expressed concern about what no deal might mean for EU workers.52 The British in Europe campaign group said that

The short answer to the question “What would be the effect of no deal?” is that nobody knows for certain. The worst-case scenario is that UK citizens in the EU and EU citizens in the UK would simply lose all of their existing rights as EU citizens living in an EU Member State other than their country of origin.53

32.We welcome the progress made on citizens’ rights and urge both sides to do more to resolve the outstanding areas of dispute to provide reassurance to millions of citizens living across the EU. However, attaining sufficient progress in December 2017 does not mean there will be a final agreement in place on citizens’ rights. Firstly, negotiations on citizens’ rights will continue alongside phase two talks. Secondly, the principle that “nothing is agreed until everything is agreed” holds out the risk that, even when an agreement on citizens’ rights is reached, it could still be put in jeopardy by a failure to reach an overall Withdrawal Agreement. We call on the Government to request, and the EU to agree, that any agreement reached on citizens’ rights should be ring-fenced when reached, and preserved even if no overall Article 50 deal is agreed. If the EU negotiating team rejected such a request, then the UK Government should make a declaration that it will unilaterally provide a guarantee on EU citizens’ rights in the UK (as recommended in a report by our predecessor Committee).54 This would provide reassurance to the more than three million EU citizens living in the UK. In these circumstances, we would expect the EU to issue a similar guarantee to UK citizens living in EU countries.

Northern Ireland and the Republic of Ireland

33.Northern Ireland is the only part of the UK to share a land border with an EU member state and UK withdrawal will mean that an EU external border will be between Northern Ireland and the Republic of Ireland. The Government and the EU27 have placed the highest priority on protecting the Belfast Agreement, peace and co-operation.

34.The Government and the Commission have published position papers on the future of the border. The Government’s paper sets out its proposals for dealing with the following issues:

It emphasises that the unique circumstances relating to Northern Ireland and the Republic of Ireland must be addressed early in the negotiations, in accordance with directives from the Commission and priorities published by the Irish Government. However, it says that for progress to be made the EU and UK must move quickly to negotiations on their future relationship.55

35.On 17 November, at a joint press conference with the Foreign Secretary in Dublin, Irish Foreign Minister Simon Coveney said that although “we all want to move onto phase two of the Brexit negotiations”, discussions were “not in a place right now that allows us to do that.” He stated: “We have very serious issues, particularly around the border, that need more clarity”.56 The same day, Irish Taoiseach Leo Varadkar told Sky News at an EU leaders’ summit in Sweden that he “can’t say in any honesty” that agreement is close on the border issue.57

36.The UK and the Irish Governments are co-guarantors of the Good Friday Agreement. The complexity and sensitivity of the implications of the UK’s decision to withdraw from the EU, including the Single Market and Customs Union, for Northern Ireland and the Republic of Ireland mean that the negotiations will continue into phase two of the Article 50 process. We agree with the Government’s view that for progress to be made in Northern Ireland, the EU and UK should move quickly to negotiations on the terms of the EU-UK future relationship. We also recognise the unique challenges posed by the need to preserve the peace settlement in Northern Ireland, including issues that go far beyond trade and customs. In the light of the recent statement from the Irish Government about the border, Ministers should now set out in more detail how they plan to meet their objective to avoid the imposition of a border, including if no withdrawal agreement is reached by 29 March 2019.

Belfast Agreement and citizens

37.The Government has said that its priority is to uphold the Belfast (‘Good Friday’) Agreement, which among other things establishes that those born in Northern Ireland should be able to be citizens of the UK, or the Republic of Ireland, or both.

38.The Government proposes that the EU, the Republic of Ireland and the Northern Ireland Executive should continue to fund the PEACE IV programme, which is designed to improve relations between and integrate communities on both sides of the border, until and potentially beyond the 2014–2020 framework, and that the Special EU Programmes Body (its managing authority) should remain in Belfast.

39.The EU’s position paper differs from the UK’s in some respects. For example, it states that continued PEACE IV programme funding must be tied to continued UK payments into the EU’s budget.58 It also states that the integrity of the EU’s Internal Market and Customs Union must be protected and that those in Northern Ireland choosing to retain citizenship of the Republic of Ireland must continue to enjoy the “rights, opportunities and identity” that come with EU citizenship.59

Common Travel Area

40.The Government’s second priority is to enshrine the CTA within the Withdrawal Agreement. The UK is content to include an assurance that this would not compromise the Republic of Ireland’s free movement obligations. The EU’s guiding principles also include the preservation of the CTA but suggest that this should be “in conformity with EU law”, including that which governs the free movement of people within the EEA, of which Republic of Ireland will remain a member.

41.The Government has demonstrated significant flexibility in its approach to protecting the Belfast Agreement, peace and co-operation on the island of Ireland. Its objective of enshrining the Common Travel Area within the Withdrawal Agreement is welcome as is the UK’s assurance that it will not compromise the Republic of Ireland’s free movement obligations.

North-South and East-West cooperation

42.The Government’s final main priority is to reach agreement on the principles of North-South and East-West cooperation. It has stated that cross-border co-operation is wider than the CTA and the goods border and said that the single energy market requires specific early consideration.60

Arangements at the border

43.There is a continuous flow of lorries across the border between the Republic of Ireland and Northern Ireland. The border has over 200 crossing points with no customs controls.61 In the Prime Minister’s Florence Speech, she said that the EU and the UK “have both stated explicitly that we will not accept any physical infrastructure at the border.” It is not yet evident, however, how this can be achieved given the Government’s stated position to leave the Single Market and the Customs Union, as this would mean that the border will be the customs border of the EU. In evidence to the Northern Ireland Affairs Committee in February, Michael Lux, a customs and trade lawyer and former customs official at the European Commission, said:

If [ … ] the UK does not want to have even a part of its territory remain in the customs union, then there are different possibilities for agreements between the EU and the UK. Each of these agreements, whether it is a customs union agreement or a free trade agreement, requires that customs controls take place at the border.62

It was reported that, in an update on the negotiations, the European Commission suggested that to avoid a hard border between Northern Ireland and the Republic of Ireland, the economic border should be moved to the Irish Sea which would mean checks taking place between the island of Ireland and Great Britain,63 which would also have significant consequences for the port at Holyhead. However, the Government’s position paper states unequivocally that the answer to avoiding a hard border, “cannot be to impose a customs border between Northern Ireland and Great Britain”.64

44.A hard border could also pose risks for the peace process. Our predecessor Committee’s third report said:

Many in Ireland are deeply concerned that the introduction of new and visible border check points would provide an opportunity and focal point for those who wish to disrupt the peace and feed a sense in some communities that the Good Friday Agreement was being undermined.65

Moving checks away from the border might alleviate some of these concerns but could still be disruptive to business.

45.In a future partnership paper on the UK’s customs arrangements after withdrawal, the Government put forward two proposals for ensuring that trade between the EU and UK remains as ‘frictionless’ as possible. The first option, ‘a highly streamlined customs arrangement’, would use technology-based solutions to reduce customs checks along with international precedents to try to deliver a border that is light touch, although “there will remain an increase in administration compared with being inside the EU Customs Union.”66 The second option, a ‘customs partnership’, involves having no EU-UK border but would allow the UK to leave the Single Market and strike free trade agreements. As the Government notes, this would be “unprecedented as an approach and could be challenging to implement”.67

46.The solutions proposed by the Government are by its own admission “untested” and the Irish Taoiseach has said that the UK must put forward “a lot more detail” on how the proposals would work.68 An internal report by the Irish Revenue Commissioners, recently leaked to the press, stated that an open border between Northern Ireland and the Republic would be impossible from a customs perspective.69 Mairead McGuinness MEP, First Vice President of the European Parliament, whose constituency includes the entire southern side of the border region of Ireland, told us the way to avoid borders is for the UK to remain in the Customs Union and Single Market. Given the volume and economic importance of cross-border trade to both the Northern Ireland and the Republic of Ireland economies, it is essential that commitments to free and frictionless trade are backed with practical proposals to ensure those commitments are upheld.

47.We welcome the Government’s commitment to “no physical infrastructure” at the land border between Northern Ireland and the Republic of Ireland. We also welcome its rejection of a customs border between Northern Ireland and Great Britain. We do not currently see how it will be possible to reconcile there being no border with the Government’s policy of leaving the Single Market and the Customs Union, which will inevitably make the border between Northern Ireland and the Republic of Ireland the EU’s customs border with the UK; i.e. including the land border in Northern Ireland and at the ports of Holyhead, Milford Haven and Fishguard that provide freight services to and from the Republic of Ireland. It will be made harder by the fact that the Government’s proposals, by its own admission, are untested and to some extent speculative. We call upon the Government to set out in more detail how a “frictionless” border can in practice be maintained with the UK outside the Single Market and the Customs Union.

Financial settlement

48.The Prime Minister’s Florence Speech included an important proposal on the financial settlement. She assured EU Member States that they will not need “to pay more or receive less over the remainder of the current budget plan” and that the UK would honour “commitments we have made during the period of our membership”. This was widely reported to imply that the UK had offered €20 billion to cover the Multiannual Financial Framework (MFF) budget plan, which runs until the end of 2020, and that the UK would continue to pay contributions during the implementation period.70 However, the Prime Minister indicated that the financial settlement could only be resolved as part of a wider settlement on an implementation period and the future EU-UK relationship.71 If the UK paid nothing towards a financial settlement, then the EU would lose 13% of its budget.72 Under the MFF, if the EU’s revenues decline then the MFF declines accordingly and Member States would initially be expected to cover the shortfall.73

49.Despite the Prime Minister’s proposal in Florence, Michel Barnier said that the negotiations remained “deadlocked” on the financial settlement, after the fifth round of negotiations. He was therefore unable to recommend to the European Council the start of discussions on the future relationship.74 The European Council agreed with Michel Barnier at its meeting in October and stated that the UK had not translated its position on the financial settlement into a “firm and concrete commitment” to settle its “obligations”.75 At meetings in Brussels and Paris, we heard repeatedly that more clarity would be needed on the specific “commitments” to which the PM had referred in her Florence speech.

50.The EU has previously indicated that sufficient progress need not entail agreement on a specific sum, but there should be agreement on a methodology for calculating the settlement.76 It has published a position paper on the financial settlement, which set out the financial obligations for which the EU believes the UK remains liable and proposed a methodology for calculating the UK’s share of those commitments.

51.The main categories of obligations cited by the Commission are:

The paper says that special arrangements will be required to settle the UK’s withdrawal from the European Investment Bank, the European Central Bank, the European Development Fund, and EU Trust Funds and the Facility for Refugees in Turkey. It also states that the UK should continue to pay any obligations undertaken with respect to Council agencies that are not funded from the EU’s general budget (such as the European Defence Agency) before withdrawal, and should pay its share of funding for UK teachers seconded to European schools until 2021.

52.According to the paper, the UK’s share of the above liabilities should be calculated as the ratio between the UK’s total contribution to the EU budget and the total contributions of the EU28 over the period 2014–2018.77

53.The UK has not published a corresponding position paper on a financial settlement. The Secretary of State said he wanted “to take their bid down” rather than appearing to make a counter-bid.78 Instead, in the third round of negotiations in August, the Government challenged rigorously the legal basis of the EU’s position paper.79 In evidence, the Secretary of State told us that the Commission’s paper includes “every conceivable liability, including things like contingent liabilities, and did not take in any assets”. The EU’s assets, which the UK would have contributed to, include buildings, equipment and financial investments.

54.On the legal basis for the financial settlement, the Secretary of State said that the UK could have liabilities for one year but not for any significant length of time.80 He also said:

From the beginning, from my very first meeting with him, we took the view that this is not an issue of legal responsibility; it is an issue of political, moral maybe, and operational responsibility. You pick your words: different people put it differently. But it is not a legal responsibility.81

55.In March, the House of Lords EU Select Committee published a report entitled Brexit and the EU Budget. The report examined whether the UK had a legal responsibility to pay a financial settlement, particularly if the EU and UK failed to reach a Withdrawal Agreement under Article 50. The Committee concluded that on the balance of legal opinion that was presented, the UK was not liable legally to pay a financial settlement on exiting the EU:

Article 50 allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget and related financial instruments, unless a Withdrawal Agreement is concluded which resolves this issue.

The Committee also concluded:

Individual EU Member States may seek to bring a case against the UK for the payments of outstanding liabilities under principles of public international law, but international law is slow to litigate and hard to enforce. In addition, it is questionable whether an international court or tribunal could have jurisdiction.

However, the political and economic consequences of the UK leaving the EU without responding to claims under the EU budget are likely to be profound. If the UK wants a preferential trading relationship with the EU, including a transitional arrangement, the EU partners may well demand a financial contribution post-Brexit.82

56.The Government has said that it intends to continue contributing to a range of programmes after it has left the EU. The Secretary of State said it was “likely” that the UK would continue to contribute to Horizon 2020 and the Galileo Space programmes as well as nuclear programmes.83 That chimed with the Prime Minister’s statement that the UK intends to continue to take part in specific policies and programmes such as “those that promote science, education and culture—and those that promote our mutual security.”84 Non-EU members already participate in some of these programmes. For example, Turkey participates in Horizon 2020. Universities have also raised the implications of leaving Erasmus.

57.The negotiations on the financial settlement are fluid and the situation may change. The Government has said that the UK will meet its financial obligations. It must now seek a fair settlement that will not unduly burden UK taxpayers. The evidence is clear that there are many ways to calculate the potential settlement and all involve a degree of speculation. Having challenged the EU’s financial assessment, the Government should provide us with evidence on its analysis of the EU’s position paper of 12 June 2017 on the financial settlement. If the UK is required to contribute to the EU’s liabilities, then the UK must benefit from a share of the EU’s assets, which the EU’s position paper does not mention in any substantive way. To move forward, the Government and the EU should set out what assets the UK is entitled to. The Government should also set out, as soon as possible, which scientific, educational, cultural, security and any other programmes it would like to contribute to and benefit from after the UK leaves the EU. Early and clear explanation of the purpose of such expenditure will be important to build public confidence in the Government’s efforts to reach an agreement with the EU on finances.

58.The EU has decided that it will not allow negotiations to move to phase two until sufficient progress on the financial settlement has been made. We continue to take the view of our predecessor Committee that this approach is unnecessary and unhelpful but the Government has reluctantly accepted it. However, the Government will need to balance its negotiating position against the significant economic risk that arises from the continuing uncertainty over the negotiations. It is essential that talks now move on to phase two.

Parliamentary scrutiny of leaving the EU

59.The Secretary of State has said that the Government would endeavour to keep Parliament at least as well informed on the negotiations as the European Parliament is by the Commission.85 Furthermore, in June the Government and the Commission agreed that “for both parties the default is transparency.”86 In her Lancaster House speech, the Prime Minister communicated her intention to engage fully with the devolved nations throughout the process.87 However, the inter-governmental frameworks whereby devolved administrations input into negotiations are deficient. The JMC (EN), Chaired by the First Secretary of State, has only met once since February.

60.In our predecessor Committee’s first report we welcomed the Government’s broad assurances that Parliament will have the opportunity to scrutinise the Government’s plan for the negotiations. While the House has had opportunities to scrutinise Ministers in the Chamber, the Dissolution of Parliament on 22 April 2017 ahead of the General Election in June combined with the Summer Recess, meant that most Select Committees were not established until September. In that period the Government and Commission completed three rounds of negotiations and published numerous position papers, without an opportunity for this Committee to provide scrutiny.

61.In Brussels, we heard that the Commission’s commitment to transparency in its dealings with the European Parliament was based, in large part, on practical expediency. The European Parliament will have a vote on the final deal and therefore, we were told, it was essential to secure the European Parliament’s buy-in at all stages of the negotiations. The same is true for the UK Parliament, which has been promised a meaningful vote on the final deal.

62.We note the Government’s recognition of Parliament’s role in scrutinising the negotiations. However, the June General Election, combined with the Summer Recess, has meant that nearly a quarter of the Article 50 negotiation time has passed without the opportunity for us to provide scrutiny on progress. While acknowledging the statements he has made to the House, we expect to hear evidence from the Secretary of State at regular intervals and we request that he commit to giving evidence to us at least once every two months.

63.We note the Government’s intention to work closely with the devolved administrations. However, as we said in our report on the European Union (Withdrawal) Bill, the Joint Ministerial Committee for EU Negotiations (JMC (EN)) should meet “much more regularly” and address “the concerns expressed by the devolved administrations about the effectiveness of its operations.” We also recommended that the Government “set out whether it is considering formal structures for inter-governmental relations, and its proposed arbitration system for disputes, so that the views of the devolved governments can be heard, including in any future trade agreements.”

Sectoral analyses

64.On 14 December 2016, in evidence to our predecessor Committee, the Secretary of State said that his Department was carrying out 57 sets of sectoral analysis, covering 85% of the economy (one sector was added later, making it 58 sectors, covering 88% of the economy).88

65.In June 2017 and subsequently in October 2017 the Government promised to publish “shortly” the list of sectors being analysed.

66.The Government has been criticised for not placing the sectoral analyses in the public domain. On 30 August, a Freedom of Information (FoI) request that sought their publication was submitted to the Department for Exiting the EU.89 On the 29 September, the Department responded with a refusal to publish the documents. According to reports, the request was refused under Section 22 of the Freedom of Information Act 2000 which covers information that is exempt from release because it is intended for future publication.90 The response also said:

There is a strong public interest in policymaking associated with our exit from the EU being of the highest quality and conducted in a safe space to allow for design and deliberation to be done in private.91

In the same response, the Government also reiterated what the Secretary of State had publicly stated in June, that the sectoral analyses had been completed.

67.In October, 120 MPs signed a letter stating that the Government was keeping “Parliament and the public in the dark” and called upon the Government to publish the documents.92 In evidence to us, the Secretary of State said that one criterion for not placing the documents in the public domain was that the House of Commons had previously resolved that:

[ … ] there should be no disclosure of material that could be reasonably judged to damage the UK in any negotiations to depart from the European Union after Article 50 has been triggered.93

68.It is not clear how widely read the analyses have been within Government. The Secretary of State said that the Prime Minister would “know the summary outcomes” of the documents but that she may not have read every single one. He also said that they had been drafted in “excruciating detail”. He confirmed that the Cabinet would also have seen the summary outcomes but not the full assessments.94

69.On 30 October, the Government released a list of sectors on which it had commissioned analysis, in an annex to a letter from the Secretary of State to the Chair of the House of Lords EU External Affairs Sub-Committee, which was published on the Committee’s website.95 The next day, Her Majesty’s Official Opposition tabled an Humble Address (a type of motion that the Speaker said “have traditionally regarded as binding or effective”96) that called for the list of sectors to be laid before the House and for “the impact assessments arising from those analyses to be provided to the Committee on Exiting the European Union.” The Government did not oppose the motion and it was agreed without division.97

70.In a letter to us, the Secretary of State said that the Government is preparing to respond to the motion. He repeated a point made in the debate that the sectoral analyses are not discrete impact assessments for 58 sectors but are instead a “wide mix of qualitative and quantitative analysis”, that is “contained within a range of documents developed at different times since the referendum”. He said that the analyses are evolving constantly and are being updated based on discussions with industry and the negotiations with the EU. The Government was committed to providing the information as soon as possible, taking not more than three weeks.98

71.On 7 November, Steve Baker MP said that the sectoral analyses had been discussed with the devolved administrations and the Joint Ministerial Committee, and that the Government would consider how to share that information with the devolved administrations “as and when the information is released to the Select Committee”.99

72.The Secretary of State made it clear that confidential or commercially sensitive information in the analyses, including advice to Ministers would remain private. Furthermore, he said that the Department intended to “collate and bring together this information in a way that is accessible and informative for the Committee”.

73.The Secretary of State met with the Chair of the Committee for Exiting the EU on 13 November to discuss the release of the sectoral analyses.100

74.Towards the end of the Article 50 negotiations, if there is a deal, MPs will vote on whether to accept the outcome. The Government, therefore, has a duty to be as open with Parliament as possible without jeopardising its negotiating position. We welcome the Government’s statement that it will abide by the will of the House and provide us with the sectoral analyses of the UK’s exit from the EU. There is an important difference between information which would genuinely harm our negotiating position and information that is simply embarrassing for the Government. The two are not the same thing. On 27 November, the Committee received an edited version of the sectoral analyses from the Secretary of State for Exiting the European Union. We will now consider them and respond separately.

Economic assessment of EU exit on UK nations and regions

75.In evidence to the Treasury Select Committee, the Chancellor of the Exchequer said that the Government uses a model that can examine the sectoral impacts of EU withdrawal on regional and national economies within the UK, as well as impacts on bilateral trade pairings with other countries.101 Charles Grant, Director of the Centre for European Reform, referred to the unpublished analysis in June 2017, when he said that it showed “the economic benefits of future FTAs would be significantly less than the economic cost of leaving the customs union”.102 The Government has been criticised for not publishing the assessment of the impact of Brexit on Scotland’s economy.

76.In response to an FoI request for the data, the Department for Exiting the EU did not confirm or deny that such data existed, reportedly because it could impact “the national and regional economies by precipitating pre-emptive and reactionary assumptions from stakeholders in the respective regions”.103 However, the Secretary of State told us that the Government would be willing to share the results with the devolved administrations at official level.104

77.We welcome the Government’s commitment that it will share with the devolved administrations its economic modelling on the impact of UK withdrawal on the constituent nations and regions of the UK. We call on the Government to clarify whether this modelling is different from the sectoral analyses that it has already committed to sharing with us and if so, to provide us with this additional economic modelling as well.

12 HC Deb 17 October 2017, Vol. 629, Col 731

13 HC Deb 17 October 2017, Vol. 629, Col 731

22 House of Lords EU Select Committee, Oral evidence 31 October 2017, Q3

23 The British in Europe paper Case Studies of UKinEU and professional qualifications, and cross-border working, October 2017, gives examples of UK migrants currently working across Europe

24 See also, House of Lords, EU Select Committee, Oral evidence 31 October 2017, Q3

25 The3million and British in Europe, Citizens’ Rights: The road to a satisfactory comprehensive agreement, 31 October 2017

26 The3million and British in Europe, Citizens’ Rights: The road to a satisfactory comprehensive agreement, 31 October 2017

27 HC Deb 17 October 2017, Vol. 629, Col 731

30 Under “Role of CJEU” and “Monitoring and oversight” in the September Joint Technical paper it says “For discussion in Governance Group”

31 Exiting the EU Committee, The Government’s negotiating objectives: the rights of UK and EU citizens, Second Report of Session 2016–17, HC 1071, The Home Office granted 65,195 permanent residence documents to EEA nationals and their family members in 2016—when there are an estimated three million EU citizens in the UK—and was rejecting nearly 30% of permanent residence applications.

34 HC Deb 17 October 2017, Vol. 629, Col. 731

36 Home Affairs Committee, The work of the Home Secretary, oral evidence 17 October 2017, Q19. See also Civil Service World, Home Office to recruit 1,500 more staff to deal with Brexit, Civil Service World, 18 Oct 2017

37 Home Affairs Committee, The work of the Home Secretary oral evidence, 17 October 2017, Qq22–25

38 Home Office, Immigration statistics, April-June 2017, 24 August 2017

42 Ibid para 5

47 We will return to the issue of UK nationals in the EU in future

49 House of Lords EU Select Committee, Oral evidence 31 October 2017, Q5

50 House of Lords EU Select Committee, oral evidence 31 October 2017, Q5. See also the EU Withdrawal Bill, Explanatory notes

54 Exiting the EU Committee, The Government’s negotiating objectives: the rights of UK and EU citizens, Second Report of Session 2016–17, HC 1071, 5 March 2017, para 45

55 Department for Exiting the European Union, Northern Ireland and Ireland position paper, 16 August 2017

57 Lewis Goodall, “Irish PM Leo Varadkar throws a spanner in Brexit works”, Sky News, 17 November 2017

58 EU Commission, Dialogue on Ireland/Northern Ireland, 7 September 2017

60 The electricity sector in Ireland previously operated as two separate markets. Northern Ireland operated as part of the UK, and the Republic of Ireland operated its own separate market. In 2007 the two Transmission System Operators established the Single Electricity Market (SEM) for the island of Ireland, under which all electricity generated on or imported onto the island of Ireland must be sold, and from which all wholesale electricity for consumption on or export from the island of Ireland must be purchased.

61 Institute for Government, Implementing Brexit: Customs, 11 September 2017

62 Northern Ireland Affairs Committee, Future of the land border with the Republic of Ireland, 1 February 2017, HC 700, Q367

63 Financial Times, Keep Northern Ireland in customs union, says EU, 9 November 2017

64 Department for Exiting the European Union, Northern Ireland and Ireland: position paper, 16 August 2017

65 Exiting the European Union Committee, The Government’s negotiating objectives: the White Paper, Third Report of Session 2016–17, HC 1125, para 112

66 Department for Exiting the EU, Future customs arrangements: A future partnership paper, 15 August 2017, para 29

67 Department for Exiting the European Union Committee, Future Customs Arrangements, 15 August 2017

70 For example, Daily Mail, May is accused of betraying referendum by effectively keeping Britain in EU until 2021 as she climbs down on citizens’ rights and borders with €20bn bung for Brussels in bid to revive Brexit talks, 23 September 2017 and Politico, Theresa May: UK to follow EU rules for 2 years after Brexit, 22 September. 2017 The Multiannual Financial Framework (MFF) of the European Union, also called the financial perspective, is a seven-year framework regulating its annual budget. It is laid down in a unanimously adopted Council Regulation with the consent of the European Parliament

71 Prime Minister, PM’s Florence speech: a new era of cooperation and partnership between the UK and the EU, 22 September 2017. Michel Barnier has said the UK has said that no member should pay more or receive less for the 2019–2020 period only. See, Commission, Press statement by Michel Barnier following the fourth round of Article 50 negotiations with the United Kingdom, 28 September 2017

72 House of Commons Library briefing, The UK’s contribution to the EU Budget, 9 October 2017

73 LSE [Michiel Scheffer, a regional minister in the Netherlands], Brexit: If Britain doesn’t pay the Brexit divorce bill, her ex-partners will have to, 7 August 2017

75 European council, (Art. 50) meeting (20 October 2017) - Conclusions, 20 October 2017

76 House of Lords EU Select Committee, oral evidence: Scrutiny of Brexit negotiations, 12 July 2017, Q2.

82 House of Lords European Union Select Committee, Brexit and the EU Budget, 15th Report of Session 2016–17, HL Paper 125, paras 135 - 137, 4 March 2017.

84 Prime Minister, PM’s Florence speech: a new era of cooperation and partnership between the UK and the EU, 22 September 2017. Horizon 2020 is the EU’s programme for research and innovation. Galileo is the EU’s satellite navigation system akin to the USA’s GPS (Global Positioning System), which provides Position, Navigation and Timing (PNT) information.

85 First Report of Session 2016–17, The process for exiting the European Union and the Government’s negotiating objectives, HC 815, para 36 and para 40

86 EU Commission, Terms of Reference for the Article 50 TEU negotiations, 19 June 2017 & Department for Exiting the EU

88 Exiting the EU Committee, Oral evidence: The UK’s negotiating objectives for its withdrawal from EU, HC 815, Q404. The Government later stated that the impact assessment did not include a further 10% of the UK economy that is ‘imputed rent’, which is not traded. The remaining areas of the economy include sectors with strong links to other sectors covered, and sectors where the issues are the same as those in other sectors. See, EU External Affairs Sub Committee, Government Response: Brexit: trade in goods, 30 October 2017, Annex A

89 Seema Malhotra MP, Seema Malhotra MP Demands answers to EU FoI Request, 31 August 2017

90, Freedom of Information Act 2000

92 David Lammy MP, Demanding DExEU publish Brexit impact assessments, 13 October 2017

93 Q127. The full text of the motion that the Secretary of State was referring to is available at HC Deb 7 December 2016, Vol. 618

95 The letter from the Secretary of State was in response to a House of Lords EU External Affairs sub-committee report on Brexit: Trade in Goods, 16th Report of Session 2016–17, 14 March 2019. See EU External Affairs Sub Committee, Government Response: Brexit: trade in goods, 30 October 2017, Annex A

96 HC Deb 1 November 2017, Vol. 630, Col. 931

97 House of Commons, Votes and Proceedings, 1 November 2017

98 Exiting the EU Committee, Letter to Chair from Secretary of State regarding Brexit impact assessments, 6 November 2017. See also, Department for Exiting the European Union, HCWS231, 7 November 2017

99 HC Deb 7 November 2015, Vol. 630 Col. 1335

100 Exiting the EU Committee, Letter to Chair from Secretary of State regarding Brexit impact assessments, 6 November 2017. See also, Department for Exiting the European Union, HCWS231, 7 November 2017

101 Treasury Select Committee, Oral evidence: The Work of the Chancellor of the Exchequer, HC 424, Qq 68–65

102 Centre for European Reform [Charles Grant], Britain prepares for a softer Brexit, 17 June 2017

103 The Courier, Tories urged to publish UK’s secret report on extent of Brexit damage to Scotland, 14 October 2017. DExEU’s response to the FOI is not available on the FOI responses page on

30 November 2017