Chapter 1: Introduction
Brexit negotiations and the EU budget
1.The budget touches on all areas of EU activity. The politics of negotiating the EU’s revenues and expenditures are contentious, and typically highlight—if not exacerbate—divisions between the Member States. The UK currently contributes approximately 12% of the EU’s funding, although there are many ways of calculating the UK’s payments into the EU budget. Determining and accommodating the budgetary implications of UK withdrawal over a relatively short time-span—the two years allowed under Article 50—will be a profound challenge for all concerned.
2.During most of this inquiry it was not clear what sort of financial relationship with the EU the UK would seek. However, toward the end of our deliberations, on 17 January, the Prime Minister, Rt Hon Theresa May MP, made her Lancaster House speech, stating:
“There may be some specific European programmes in which we might want to participate. If so, and this will be for us to decide, it is reasonable that we should make an appropriate contribution. But the principle is clear: the days of Britain making vast contributions to the European Union every year will end.”1
3.The purpose of this inquiry was to identify the certainties and uncertainties related to the UK’s financial commitments at the point of and after leaving the EU (what might be termed the ‘exit bill’). The difficulty in establishing a figure is amply illustrated by two recent reports in the Financial Times. The earlier report estimated a potential demand of €20 billion,2 the latter, published a month later, estimated it at €60 billion.3 The gap between these estimates is a product of profound financial uncertainty, and this report draws on evidence from which it is possible to produce a variety of figures, which are sometimes mutually inconsistent. We do not specifically endorse any particular figure, and caution against considering any of them in isolation.
4.While the legal advice we have received differed, the stronger argument suggests that the UK will not be strictly obliged, as a matter of law, to render any payments at all after leaving.
5.Nonetheless, there are various reasons why the UK and EU may elect to negotiate continued payments, including the desire to agree an ‘implementation period’, or transitional arrangement, instead of the ‘cliff-edge’ that might otherwise result from Brexit. In the context of defining the possibilities for negotiation, we therefore assess what any short-term contributions may entail, and consider opportunities for the UK to continue to pay into certain programmes deemed to be especially beneficial over the longer term, examining potential precedents for different models of contribution.
6.Two of the Prime Minister’s 12 negotiating aims were “delivering a smooth, orderly exit from the EU” and “ensuring free trade with European markets”. Ensuring a mutually beneficial future relationship with the EU must be paramount in negotiations over Brexit. Our report considers the evidence it received in the context of these aims.
The EU Committee’s work
7.Following the referendum on 23 June 2016, the European Union Committee and its six sub-committees launched a coordinated series of inquiries, addressing the most important cross-cutting issues that will arise in the course of negotiations on Brexit.4 These inquiries, though short, are an opportunity to explore and inform wider debate on the major opportunities and risks that Brexit presents to the United Kingdom.
8.We make this report to the House for debate.
1 Prime Minister Theresa May, Speech on The Government’s negotiating objectives for exiting the EU, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech [accessed 21 February 2017]
2 ‘UK faces Brexit divorce bill of up to €20bn’, Financial Times (12 October 2016): https://www.ft.com/content/3c1eb988-9081–11e6-a72e-b428cb934b78 [accessed 21 February 2017]
3 ‘UK faces Brexit bill of up to €60bn, as Brussels toughens stance’, Financial Times (15 November 2016): https://www.ft.com/content/480b4ae0-aa9e-11e6-9cb3-bb8207902122 [accessed 21 February 2017]
4 See European Union Committee, Scrutinising Brexit: the role of Parliament (1st Report, Session 2016–17, HL Paper 33)