LORDS

UK payments to EU budget could end but political consequences would be profound

04 March 2017

The EU Financial Affairs Sub-Committee publishes its report on Brexit and the EU budget.

Background

Contributions to the EU budget will be a politically sensitive and important element of the forthcoming withdrawal negotiations. The Committee’s report seeks to address three things:

  • the permutations of determining any 'exit bill'
  • the legal obligations on the UK to make payments and
  • the costs of maintaining access to EU programmes and the single market

It places these elements in the context of the wider negotiations under Article 50.

Chairman's comments

Commenting on the report, Baroness Falkner of Margravine, Chair of the EU Financial Affairs Sub-Committee, said:

"The UK appears to have a strong legal position in respect of the EU budget post-Brexit and this provides important context to the Article 50 negotiations.

"Even though we consider that the UK will not be legally obliged to pay in to the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations. The Government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations.

"The forthcoming negotiations will be more than just a trial of strength. They will be about establishing a stable, cooperative and amicable relationship between the UK and the EU. This will not be possible without good will on both sides."

Key findings

  • 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 EU’s budget, and is a significant net contributor. 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.
  • There are strong advantages to negotiating an orderly exit in the form of a withdrawal agreement as envisaged under Article 50. This would mean that the apportionment of existing commitments and, potentially, the EU's assets, would be a matter for political negotiation. Any such division would be enormously complex and there are disagreements over how any final 'bill' could be determined.
  • A demand of €60 billion is being currently attributed to the Commission, but we find that it is possible to arrive a wide range of figures for any possible EU claim. However, it should be noted that the strictly legal position of the UK on this issue appears to be strong. Article 50 also provides for a 'guillotine' after two years if a withdrawal agreement is not reached. Although there are competing interpretations, legal evidence suggests that if agreement is not reached, all EU law will cease to apply, and the UK would not have an obligation to make any financial contribution at all—although this would only apply in a 'disorderly' or 'cliff-edge' Brexit.
  • This possibility must be set against the immense damage to UK-EU relations that a disorderly withdrawal would inevitably cause. 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.

Further information

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More news on: Parliament, government and politics, Parliament, Economy and finance, European Union, EU budget, House of Lords news, Lords news, Committee news, Exiting the European Union

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