Summary
The budget is going to be a contentious early issue during the UK’s negotiations over leaving the EU. It is crucial for both parties. The UK provides approximately 12% of the resources available to the EU budget, and is also a significant net contributor. The removal of the UK’s payments into the budget will require the other EU Member States to agree either to pay more into the budget, or draw less from it. Neither option is without difficulty, and those difficulties may colour the wider Brexit negotiations. The Government will have to consider its stance on continued budgetary contributions in the light of its impact on the wider negotiations, and the economic and political implications will need to be set against one another. The Government has stated that it is open to making payments towards specific programmes in order to cement a cooperative future relationship with the EU but there are already demands from the EU, for much wider contributions.
However, the strictly legal position of the UK on this issue appears to be strong. Article 50 provides for a ‘guillotine’ after two years if a withdrawal agreement is not reached unless all Member States, including the UK, agree to extend negotiations. Although there are competing interpretations, we conclude that if agreement is not reached, all EU law—including provisions concerning ongoing financial contributions and machinery for adjudication—will cease to apply, and the UK would be subject to no enforceable obligation to make any financial contribution at all. This would be undesirable for the remaining Member States, who would have to decide how to plug the hole in the budget created by the UK’s exit without any kind of transition. It would also damage the prospects of reaching friendly agreement on other issues. Nonetheless, the ultimate possibility of the UK walking away from negotiations without incurring financial commitments provides an important context.
Given the legal and political void that would be created by a disorderly exit, we share the Government’s view of the advantages of achieving a negotiated agreement. This is particularly the case given the provision in Article 50 for a withdrawal agreement to take account of the framework for an exiting state’s future relationship with the Union. If the Government wishes to include future market access on favourable terms as part of the discussions on the withdrawal agreement, it is likely to prove impossible to do so without also reaching agreement on the issue of the budget.
Many figures have been suggested for the UK’s ‘exit bill’, with the European Commission’s chief negotiator, Michel Barnier, reportedly putting the bill at close to €60 billion. This report seeks to examine the factors contributing to these suggestions and highlights the difficulty of arriving at any definitive figure. We explore the wide range of figures it is possible to produce, depending on the chosen calculations of liabilities, assets and any UK ‘share’.
We hope that a withdrawal agreement can indeed be reached within the two years of the Article 50 period. It is contingent on both sides recognising the gravity of the alternative and being willing to reach agreement on reasonable terms in the spirit of reciprocity.