Brexit divorce bill and UK participation in EU programmes: how much and who pays? Contents

2UK participation in EU funding programmes under the Trade and Cooperation Agreement

Introduction

56.The payments required of the UK under the terms of the financial settlement in the Withdrawal Agreement are not the only contributions it is likely to make to the EU budget following its departure. As part of the new post-Brexit partnership with the EU, the Government also secured a provisional agreement on continued UK participation in several of the EU’s funding schemes under the latter’s 2021–2027 Multiannual Financial Framework, primarily related to scientific research, as well as access to certain services provided by the EU’s space programme. There are four EU programmes for which the new UK/EU Trade and Cooperation Agreement (TCA) foresees UK participation from 2021 to 2027.95 This is often referred to as “third country association” in EU parlance. Within these, UK universities, researchers and other relevant organisations and individuals would, broadly speaking, be eligible to receive EU funding on the same (competitive) basis as their counterparts based in the EU and other “associated countries”.96

57.The four EU programmes concerned are:

i)‘Horizon Europe’, the EU’s flagship funding programme for scientific research, excluding the ‘European Defence Fund’ element of that scheme and the EIC Fund (the loan/equity instrument of the European Innovation Council);97

ii)The Euratom programme for nuclear research, which has previously provided funding for the Culham Centre for Fusion Energy in Oxfordshire;

iii)The ‘Fusion for Energy’ programme, the EU’s contribution to the international ‘ITER’ nuclear fusion research project; and

iv)The ‘Copernicus’ satellite earth observation programme.98

58.In addition, the UK has negotiated access under the TCA to data generated by the EU’s Space Surveillance and Tracking programme (but not the military-level ‘public regulated service’ of the Galileo satellite navigation programme, or the services provided by the EU’s Geostationary Navigation Overlay Service (EGNOS)).99 The UK and EU have also made a political commitment for a continuation of the EU’s pre-Brexit ‘Peace PLUS’ programme, which funds cross-border projects on the island of Ireland in the context of reconciliation following the conflict there. As Peace PLUS is focussed on a particular region, rather than the UK as a whole, the financial arrangements for it are not covered by the TCA itself but will be the subject of a separate agreement.100

59.The arrangement for UK participation in the four EU programmes above related to science and space enjoys strong support from the British scientific community.101 However, it is yet to be formalised, as we discuss further below. Once that process is complete, the UK’s participation will require a further financial contribution by the Government to the EU budget for the duration of the UK’s involvement in those programmes (above and beyond any payments required under the financial settlement as discussed in chapter 1). In May 2021, the Department for Business, Energy and Industrial Strategy estimated that the UK’s gross contribution to Horizon Europe–which has the largest budget of the four EU programmes in which the Government is seeking participation–would be in the region of £15 billion over the next seven years.102 The methodology that determines the calculation of the UK’s future contributions, and what factors might affect it, is set out in more detail in paragraphs 64 to 70.

Adoption of the Protocols formalising the UK’s participation in EU programmes

60.As noted, the UK’s participation in the above EU programmes–and the rights and obligations that flow from it - is yet to be formalised. This will require the UK and EU to jointly adopt two Protocols103 to the Trade and Cooperation Agreement. Legally, this approval will take the form of a formal Decision of the UK-EU ‘Specialised Committee on Participation in Union Programmes’ (one of the many thematic governance bodies established by the Agreement).

61.While a draft of these Protocols was provisionally agreed between the Government and the EU in a Joint Declaration in December 2020,104 they were not ratified alongside the TCA because the European Parliament and the EU’s Council of Ministers were, at that point, still in the process of adopting the legal acts that underpin the EU’s funding programmes for the duration of its 2021–2027 Multiannual Financial Framework. The UK could not formally commit to participation until the legal acts were in place to formally establish the relevant programmes under EU law.105 The Joint Declaration expresses:

[The] Parties’ firm intention that [they] […] will adopt the Protocols at the earliest opportunity to allow their implementation as soon as possible, in particular with the ambition that United Kingdom entities would be able to participate from the beginning of the programmes and activities identified”.106

62.While the EU legal acts underpinning the relevant programmes are now all in place (and have been since May 2021), the Protocols remain to be formally agreed due to delays on the EU side. In particular, the European Commission is yet to make a formal proposal to the EU’s Council of Ministers to approve the aforementioned Protocols to the TCA.107 As such, the UK is not yet a participant in the EU funding programmes, but in the interim the Commission has confirmed that UK entities applying for EU funding from the relevant programmes will be “treated as if the UK is an associated country throughout the process, from admissibility and eligibility to evaluation”. However, actual grant agreements “can only be signed once the association has come into force”.108

63.Given that the EU adopted the legal acts underpinning the programmes in May, the UK raised the delay on the EU side in completing the processes necessary for the approval of the necessary Protocols at the first meeting of the new UK-EU Partnership Council on 9 June 2021. According to the minutes, the UK delegation–led by Lord Frost - pushed for a formal Decision of the Specialised Committee to involve the UK in the research and space programmes “quickly”, warning that “the delay is already having practical impacts and could have lasting effects on the development of the Programmes moving forward”, especially in relation to procurement exercises under the Copernicus programme. However, the Commission’s timetable for initiating the process to formally allow the UK to join the programmes remains unclear.

64.It appears that the delays on the EU side are not merely procedural, but also linked to the on-going political disagreements between the EU and the Government over the Northern Ireland Protocol.109 Norway and Iceland formally achieved ‘association’ to Horizon Europe (the most significant of the EU programmes in which the UK is seeking participation) on 24 September 2021.110 The European Commission has also said the arrangements are being formalised with 12 other countries besides the UK, including Turkey, the Faroe Islands and Ukraine.111Switzerland, which is also seeking association with Horizon Europe, is likely to be excluded from the programme for the time being amid the political fallout of its rejection of a new trade and partnership agreement with the EU.112 It is unclear how the Government intends to proceed if other countries are permitted to join the EU’s funding programmes but the UK’s participation is delayed much longer.

UK financial contribution in return for participation in EU programmes

65.Provided that the UK does become a formal participant in the four EU scientific and nuclear programmes through adoption of the Protocols to the TCA, the Government would have to make a substantial financial contribution to the EU budget. The methodology underpinning the UK payments to the EU is set out primarily in Part Five of the Trade and Cooperation Agreement.113 Such contributions would–broadly speaking–be calculated based on the EU’s own spending on the relevant programmes under its long-term budget 2021–2027. The UK’s payments in a given financial year is also subject to various retrospective adjustments which, depending on the circumstances, could increase or decrease the sums involved. The UK contribution to the EU budget in return for participation in EU programmes consists of two components:

66.The methodology for the financial contribution is subject to further complexities, reflecting the amount of public money at stake. In particular, the UK’s annual operational contribution will be subject to retrospective adjustments to reflect:

67.In summary, the UK’s operational contribution in a given year will depend on the planned EU spending for the programmes in which the UK participates for that year after the necessary adjustments and corrections are made to its contribution in previous year(s), which could entail either an increase or a reduction depending on the precise circumstances. Conceptually, this is not dissimilar to how the UK’s EU budget contribution and rebate operated while it was an EU Member State, as the size of these were also adjusted retrospectively to take into account actual implementation of EU spending. Any UK payments to the EU budget in return for participation in EU programmes will be made under Section 35(1) of the Future Relationship Act. This is a known as a ‘Baldwin provision’124 that authorises expenditure arising out of the implementation of the Trade and Cooperation Agreement. No such payments are due until the EU and UK formally agree the Protocols on the UK’s participation in the Specialised Committee.

Estimated UK contribution for the 2021–2027 period

68.As noted, the Department for Business, Energy and Industrial Strategy estimates the gross UK payments for the Horizon Europe scheme alone would amount to £15 billion from 2021 to 2027 (or, on average, £2.1 billion per year), provided the UK formally associates with the programme with retroactive effect to the start of 2021. That sum does not take into account receipts flowing back from the EU to the UK, which will reduce the overall net contribution. Indeed, the Department has said that it would “expect the majority of this funding to flow back to UK businesses and researchers in the form of grants”, meaning the expectation is that the net contribution will be less than half of that amount.125

69.Horizon Europe has by far the largest allocation from the EU budget of the four programmes in which the UK is seeking participation. With a maximum financial endowment of €95.5 billion (£81.4 billion), it dwarfs Fusion for Energy (€5.6 billion), Copernicus (€5.4 billion) and the Euratom research scheme (€1.4 billion).126 Given that the UK’s contribution is calculated by direct reference to the EU’s own budget for these programmes, it follows that its payments for each of the remaining three programmes over the 2021–2027 period will be substantially lower than the £15 billion estimated for Horizon Europe. However, we are not aware of the Government having published similar estimates of the gross cost to the UK of these other programmes. The Treasury has indicated that it will include detailed information about the costs of the UK’s participation in EU programmes under the TCA in its annual EU Finances Statement, beginning in 2022.127

70.With respect to the size of the UK contribution, the delays in formalising the UK’s participation in these EU programmes also raise a concern about value for money. While the EU has delayed the approval of the Protocols to the TCA, UK entities are currently not able to sign any grant or procurement agreements financed from these schemes. They will not be able to recover those lost opportunities–which will increase as time goes on–as and when association is formalised. It is not yet clear how this reduction in potential receipts from the programmes for UK recipients, if there are further delays, would be reflected in the size of the Government’s financial contribution in the form of a reduction.

71.As noted, the UK and EU are also jointly continuing the ‘Peace PLUS’ programme to fund reconciliation projects on the island of Ireland. As this programme is focussed on a particular region, rather than the UK as a whole, financial arrangements for its operation are not covered by the methodology to calculate a UK contribution as described above, but will be “subject of a separate financing agreement” (separate from the arrangements for the UK’s participation in the EU’s science and space programmes).128 This agreement does not yet appear to have been struck as of 20 October 2021, but the Government has announced the UK will pay for £730 million of its £1 billion budget over a seven-year period (with the remainder to be contributed by the EU and Ireland).129

72.The TCA provides for the possibility of the UK joining additional EU programmes, like the Erasmus+ scheme for student exchanges or the Creative Europe programme that invests in international audiovisual productions, at a later stage.130 This would require an additional financial contribution in line with the principles outlined above. The Government currently has no plans to exercise the option to expand the range of EU programmes in which the UK participates beyond those foreseen in the draft Protocol to the TCA.

73.The Government has decided that, on balance, making further contributions to the EU budget above and beyond the terms of the financial settlement in the Withdrawal Agreement is acceptable in order to secure continued UK participation in certain EU programmes related to science and space. We note the strong support for that approach in the UK scientific community and higher education sector. However, this arrangement is yet to be agreed because of delays on the EU side in approving the relevant Protocols to the Trade and Cooperation Agreement, which are becoming increasingly difficult to justify as merely procedural. Drafts of the Protocols were included in the TCA, and the Commission has made formal proposals to the EU Council of Ministers to formalise the participation of Norway and Iceland in various EU programmes for the 2021–2027 period.

74.We note the Government’s assessment that this delay “is already having practical impacts and could have lasting effects on the development of the Programmes moving forward”. In particular, it is impeding participation by British organisations in projects and procurement exercises funded from these EU programmes, potentially reducing the balance of benefits between the UK’s receipts from and contributions to them. In light of this, we ask the Government to clarify what steps are being taken to expedite the process of formalising the UK’s participation, and how it intends to respond if it is delayed further.

75.We also welcome the Government’s intention to include information on the UK’s contributions and receipts related to participation in EU programmes under the TCA in the annual EU Finances Statement, and ask it to provide information to Parliament expeditiously if–in due course - any of the review processes foreseen in the Trade and Cooperation Agreement that could lead to significant increases in UK payments, leading to potential modifications or suspension of the UK’s participation in EU programmes, are being considered.

76.We also ask the Government to clarify the status of the negotiations with the EU on the continuation of the Peace PLUS programme for Northern Ireland and Ireland, in particular when the negotiations are expected to conclude.

95 In principle, the TCA provides that the UK’s participation in the above EU programmes will last until the end of 2027, with the possibility of an extension beyond that date into the EU’s next MFF by mutual consent. However, both the UK and the EU can unilaterally terminate the UK’s participation a specific programme before 2027 where certain specific conditions are met.

96 The TCA also sets out a number of rules, for example allowing the UK to send observers to meetings of EU Member States where funding priorities are discussed, but also requiring the Government to make “every effort” within its new immigration system to “facilitate the entry and residence of persons involved in the implementation” of the EU programmes in which it participates. In addition, certain EU institutions will have specific powers within the UK to ensure the “sound financial management” of EU funding granted to, or managed by, UK-based entities, including rights of inspection for the European Commission, its anti-fraud body OLAF, and the European Court of Auditors.

97 The UK’s participation in the ‘Horizon Europe’ research programmes does not extend to the European Defence Fund element of that scheme, which funds research into, and development of, new military technology.

98 The UK’s access to the Copernicus Emergency Management Service (which provides mapping services for emergency situations) and Security Service components (which delivers mapping for border and maritime surveillance), are yet to be set out in a supplementary agreement. No announcement that a deal to that effect has been reached between the UK and the EU has been made as of X October 2021.

99 According to the European Commission, the UK requested the access to the service provided by EGNOS with no financial contribution which the EU rejected. Conversely, the EU proposed full UK participation in EGNOS (rather than access only to the service), which the UK rejected.

100 The EU has also suggested a joint UK-EU funded support scheme for Gibraltar and the neighbouring Spanish region under a new UK-EU Agreement on Gibraltar, which the Government is seeking to negotiate in the coming months.

101 See for example the Joint statement of European university groups, including the Russell Group, on “The future of Horizon Europe and restriction of access to quantum & space programmes” (23 April 2021).

102 Letter from Amanda Solloway, the Minister for Science, to Sir William Cash, Chair of the European Scrutiny Committee (25 May 2021).

103 One relating to the UK’s participation in Horizon Europe, Euratom research programme, Fusion for Energy and Copernicus; and the other relating to the UK’s access to services provided by the EU’s Space Surveillance and Tracking programme.

104 UK-EU Joint Declaration on participation in Union programmes and access to programme services.

105 Not least because these legal acts have to formally provide for the option of participation of non-EU countries like the UK, and also set the envisaged spending from the EU budget on the different programmes (which, as discussed further starting in paragraph 64, affects the UK’s contribution in return for its participation).

106 Joint Declaration on Participation in Union Programmes and Access to Programme Services.

107 Procedurally, on the EU side, the European Commission must present a proposed EU position for consideration by the 27 Member States in the Council of Ministers. This will include the finalised text of the Protocols in the form of a draft Decision of the Specialised Committee on Participation in Union Programmes (presumably informally agreed with the UK beforehand), and a Council Decision expressing the EU’s consent to them. Once approved by the Council, this will form the EU’s formal position, authorising the European Commission to approve the Protocols in the Specialised Committee.

108 European Commission, “Q&A on the UK’s participation in Horizon Europe” (25 February 2021), accessed 16 September 2021. The same treatment is also being granted to applicants from other ‘associated countries’ currently engaged in the active process of (re)association with EU funding programmes.

109 Science/Business noted in June 2021 that “UK researchers are being encouraged by the government to go ahead and apply for Horizon Europe grants, despite lack of a formal agreement to associate with Horizon Europe and the fraught stand-off over implementation of the Northern Ireland protocol”. Similarly, on 29 September 2021 Dutch newspaper De Volkskrant reported that the European Commission had briefed EU Member States that the UK could be shut out from EU funding programmes as part of a broader response to the UK’s position on the Protocol.

110 Decision of the EEA Joint Committee No 263/2021 of 24 September 2021 amending Protocol 31 to the EEA Agreement, on cooperation in specific fields outside the four freedoms.

111 European Commission documents COM(2021) 469 and COM(2021) 220. See also the European Commission’s list of non-EU countries associated with Horizon Europe (accessed 16 September 2021).

112 In September 2021, the European Commission said that ”As a consequence of the termination of the EU-Swiss Institutional Framework Agreement (IFA) negotiations on 26 May, Switzerland is not considered as a candidate to association at this stage.”

113 More specifically, Part Five of the TCA, supplemented by an Annex on ‘implementation of the financial conditions’ and by the draft Protocol on UK participation in EU programmes. This specifies for example that the contribution will have to be paid annually, in biannual installments, in Euros. Late payment of the contribution would trigger penalty payments in the form of interest on the amount due. For Horizon Europe, the largest programme in financial terms in which the UK is participating, the TCA contains a special payment schedule that reduces payments in the first few years of the UK’s participation but increases them proportionally in later years.

114 The UK’s operational contribution is additional to the EU’s own budget for the schemes concerned; in other words, it increases the total funding for those programmes overall.

115 For example, the EU can adopt ‘amending budgets’ throughout the year that can increase as well as decrease its funding allocation for specific programmes; it may not spend the full amount which it had planned; or planned spending can be ‘de-committed’ (cancelled).

116 In Article 714(8) of the TCA, this is described as “the budgetary commitments made on the commitment appropriations of that year, their implementation through legal commitments and their decommitment”.

117 Some specific calls for funding may not be open to the UK. For example, the UK will not participate in the European Innovation Council (EIC) Fund under the Horizon Europe programme, and the Agreement foresees a proportionate reduction in the UK’s contribution to that programme as a result. In addition, calls for funding may not be open to UK entities where the UK’s participation in a particular EU programme has been suspended or terminated.

118 Specific conditions are attached to the UK’s ability to trigger the financial increases review, principally relating to the significance of the EU’s budgetary increase for any of the programmes in which the UK participates.

119 Such ‘quasi-exclusion’ would occur, broadly speaking, where the participation rate of UK entities in a relevant EU grant procedure is at least 25% lower compared to the average UK participation rate in similar grant procedures. However, the determination that quasi-exclusion has taken place must be taken by the Specialised Committee i.e. with the EU’s agreement.

120 The ‘automatic correction mechanism’ applies, broadly speaking, where the UK’s receipts from competitive grants from Horizon Europe in a given year exceeded its operational contribution to such grants by at least 8% for two consecutive years, in which case the UK has to pay the difference so that its receipts and contributions are matched. The mechanism does not operate in the other direction: the UK will not get an automatic rebate on its contribution to Horizon Europe if its receipts are significantly below what it pays in.

121 A performance review can only be triggered if, in a given year, the difference between the UK’s adjusted contribution to Horizon Europe and its receipts from the programme exceeds 12% of its contribution. That would trigger the UK and EU discussing “appropriate measures” to close the gap. Ultimately, if certain conditions are met, the UK could terminate its participation in Horizon Europe altogether by reason of the gap between receipts and payments.

122 The TCA contains specific conditions that must be met before either the EU or the UK could suspend or terminate the UK’s participation in a particular EU programme. See in particular Articles 718–720 TCA.

123 See Articles 718 to 720 TCA.

124 In other words, the section is drafted to satisfy the general principle of constitutional propriety (often known as the ‘PAC Concordat’ or ‘Baldwin Convention’) that new functions involving expenditure “which is neither modest nor temporary” should be authorised by specific legislation – in this case the Future Relationship Act 2020 - and not by Supply and Appropriation Acts alone.

125 Letter from Amanda Solloway MP, Minister for Science, to Sir William Cash MP, Chairman of the European Scrutiny Committee (25 May 2021).

126 It should be noted that the budget for the Euratom research programme only covers the years from 2021 to 2025, with its budget for 2026 and 2027 to be set at a later date.

127 HM Treasury, EU Finances Statement 2020 (July 2021), Annex F.

128 The EU has also suggested a joint UK-EU funded support scheme for Gibraltar and the neighbouring Spanish region under a new UK-EU Agreement on Gibraltar, which the Government is seeking to negotiate in the coming months.

129 Northern Ireland Office, “UK announces majority contribution to PEACE PLUS funding” (4 September 2021).

130 The TCA also contains a basic framework that would cater for future UK involvement in the ‘InvestEU’ programme, a scheme that will leverage European Investment Bank (EIB) funding in participating countries for major projects in areas like industrial, transport, energy and telecommunications infrastructure. While the Government had previously suggested it would seek a new partnership with the EIB, for the time being it has chosen not to make use of the possible option to that effect provided by InvestEU at this stage (as the Treasury notified the European Scrutiny Committee by letter dated 30 September 2020).




Published: 25 October 2021 Site information    Accessibility statement