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

Conclusions and recommendations

The financial settlement in the Withdrawal Agreement

1.The European Union Finances Statement published by the Treasury is an invaluable tool in assessing the fiscal implications of the financial settlement included in the Withdrawal Agreement. We welcome the level of detail it provides on the different financial aspects of the UK’s exit from the EU. We note that the Treasury’s most recent forecast for the cost of the settlement, once payments made by the UK during the unforeseen extension of its EU membership from March 2019 to January 2020 are taken into account, falls within the range of its original estimate made in January 2018. (Paragraph 28)

2.We recommend that the Treasury make clear when publishing any future estimates of the total net cost of the settlement whether the amount includes payments made before the UK left the EU, since this may invite erroneous comparisons with the annual estimate published by the OBR (which, in our view reasonably, only includes payments made after the UK formally withdrew and the financial settlement as set out in the Withdrawal Agreement took effect). This is likely to be confusing to those without detailed knowledge of the methodology of the settlement and the different accounting approaches taken by the Treasury and the OBR when estimating its cost. The approach underlying the estimated cost of the settlement produced by the European Commission in the EU’s accounts for 2020 is so different from those forecasts, by omitting a number of components of the settlement, so as to preclude meaningful comparison. (Paragraph 29)

3.It is nevertheless concerning that there is a significant discrepancy in the valuation of the UK’s total contribution to EU pension costs under the settlement between the Treasury on the one hand, and the OBR and the European Commission on the other. This is an issue that will require careful attention as payments under the settlement fall due. Having taken note of the Treasury’s explanation of the multi-billion pound difference between its estimate and that of the OBR with respect to the pensions liability, we ask the Government to keep Parliament informed of any significant fluctuations in the estimated size of the UK’s liability in that respect and, where relevant, if the Government decides to settle the amount early in full in line with the terms of the Withdrawal Agreement. (Paragraph 30)

4.Given its size, the contingent liabilities taken on by the UK under the financial settlement–especially those in respect of the European Investment Bank - will continue to be of concern, even if there is no indication at present that the either the EU or the EIB will require payment from the UK as a result of them crystallising. The Committee will continue to monitor any relevant developments in this regard closely. We ask the Government to be proactive in informing Parliament if any developments occur that undermine these contingent liabilities’ current classification as remote. (Paragraph 41)

5.The Government rightly negotiated important safeguards as part of the Brexit financial settlement that prevent the UK from having to contribute to increases in EU spending in 2020 that were agreed only after it ceased to be a Member State. However, discussions on the question of whether the UK must contribute towards €2 billion of additional Covid-related EU spending, unlocked by means of an amendment to the 2014–2020 Multiannual Financial Framework, have been on-going for over a year and appear unresolved. We therefore ask the Treasury to clarify the amount for which the UK is would be liable if the EU’s interpretation were to prevail, what progress has been made in resolving the matter, and whether either side has indicated that a formal dispute resolution process may be necessary to resolve the issue. (Paragraph 49)

6.We do not take any position on the merits of the arguments made by the Government and the Commission respectively in relation to the scale of, and duty losses associated with, undervaluation fraud at UK ports, as the matter remains sub judice. However, it is important to set out some factual context to the dispute given that it could, potentially, have significant fiscal implications under the financial settlement in the Withdrawal Agreement if the UK were retrospectively found to have underpaid EU budget contributions from 2011 to 2017 based on customs duties. There may also be wider issues for consideration by Parliament relating to the robustness of the UK’s customs controls. Once the EU Court of Justice has delivered its ruling in this case, should the Government’s case for dismissal not prevail, we expect the Treasury to provide Parliament with its assessment of the legal and financial implications without delay. (Paragraph 55)

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

7.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. (Paragraph 73)

8.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. (Paragraph 74)

9.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. (Paragraph 75)

10.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. (Paragraph 76)

Published: 25 October 2021 Site information    Accessibility statement