29 November 2017

Paying €50 billion just to talk would be an unforgivable mistake


Confused and conflicting reports about the EU “divorce bill” are all over the papers this morning. It’s often alleged that the “divorce bill” was some kind of surprise to Brexiteers, but that’s not really so. Some of us always knew there would be complexity here. During the EU referendum, I repeatedly identified the issue of the UK’s EU contribution as a potentially thorny issue in the process of leaving .

Here’s an example of what I said:

Much of the current debate appears to assume that, following a Leave vote in mid-2016, the UK would leave the EU in 2018. I think that’s unlikely. The most natural date for a departure would be at the end of the current EU budget framework in 2020, which is also conveniently at the end of the current UK Parliament. I think there would be very little appetite on either side to unpick the current EU budget round or to work out some new way for the UK to contribute to the EU for 2019 or 2020…There’s probably also a scenario out there in which we had formally departed in 2018 but there was a transitional arrangement that included everything being virtually unchanged until the end of the budget framework in 2020. However all that worked, de facto departure would probably be 2020.

It is, however, fair to say that such discussions received relatively little coverage during the referendum campaign. And rightly so. The referendum was a decision about the next 45 years and beyond, not the next five. The actual process of leaving the EU makes almost no difference, either way, to the merits of leaving, so of course it made sense that it would play relatively little role in the referendum debate.

Shortly after the EU referendum, however, the issue of the “divorce bill” started to climb up the agenda. The UK’s position has been consistent: we would pay anything we truly owed, and that we would also be willing to pay something above that – e.g. for any EU programmes we continued to be part of or as part of some transition arrangements.

“Divorce bill” or “exit bill” are potentially rather misleading terms. Some pro-Remain critics of the government, such as Labour MP Chuka Umunna on Radio Four’s Today programme this morning, suggest that the “divorce bill” is something we are only paying because of leaving the EU. But insofar as the “divorce bill” is about paying things we owe, or paying contributions that we do not strictly owe but that the EU was expecting and had planned its own expenditure on the basis of receiving, it’s pretty easy to see that we would certainly have paid it if we had remained. Such payment is nothing, per se, to do with whether we remain in or leave the EU. The debate is not about what extra we pay as a consequence of leaving. It’s about how fast it is reasonable for us, as we leave, to taper and phase out contributions that we would have made had we remained. The “divorce bill” debate is therefore about how much less the UK pays the EU as a consequence of leaving, not how much more.

The UK government position has been that it probably does not strictly owe anything in a narrow legal sense; that it may have some limited moral obligations to pay for things such as the pensions of EU officials (worth perhaps €8-10bn but with a roughly equivalent amount to be netted off for items such as the return of monies we had put in to an EU bank); that it does not owe (either legally or morally) anything for the contributions the EU had expected it to be paying after it left (the so-called “MFF” and “RAL” — let’s not worry here about what those stand for); but that it would be willing to pay something towards that in a transition period, and that it does not owe advance payment on joint guarantees the UK and other member states made of other countries’ debts — instead, it would simply continue with the guarantees. This, in my view, is a thoroughly reasonable stance to take.

According to this approach, the UK doesn’t owe the EU more than around €10bn (and it might even be owed something by the EU), but that it would be willing to pay several tens of billions of euros as part of an overall deal. As an example of this, in her Florence speech Theresa May said the UK would be willing to pay the contributions that had been anticipated out to 2020 (that’s the “MFF” bit of the payment, if acronyms are your thing) as part of a transition deal. I’ve myself suggested a slightly longer transition, extending out to around 2022, with a total payment of around €45bn.

There has never been any difficulty, from the UK side, with paying amounts of this order as part of an overall deal. It was the EU that had turned that offer down. Whilst the UK was willing to pay perhaps €45bn, but only as part of an overall deal, the EU insisted the UK had to accept it owed the EU €45bn or more and would pay it even if there were no deal with the EU at all. In the past few days various press reports have claimed that the UK is agreeing to pay €45bn or more — perhaps as much as €89bn on some reports — unconditionally. As the Financial Times put it, “Germany and France remain adamantly against Britain withholding part of a financial settlement as ‘leverage’ in later trade negotiations… the EU side… will not allow the financial settlement to be ‘reopened’ during trade talks, with revisions being made according to market access. Berlin is also resisting any conditions that directly tie a financial settlement to the trade deal.”

While the UK agreeing to pay €45bn as part of an overall settlement is good (indeed, that figure is the one I have proposed), the UK agreeing that it actually owes €45bn or more (perhaps many tens of billions of euros more), having argued for a year and a half that it owed less than €10bn, is unacceptable. If Theresa May had really agreed that, this article would be calling for her to resign. But Downing Street has denied that, stating that reports that a settlement has been agreed unconditionally and that it could be as much as €55bn are “completely wrong”.

Thank heavens for that. If the UK really believes it owes €45bn or €55bn it should have said so from the start. We should pay what we owe, unconditionally. We can’t expect any good will or anything else in return for the mere paying of our debts. Negotiating points should only be over what we believe we do not owe and hence about things we want to get in return. A mere commencement of trade talks — trade talks that we do not know the outcome of — are in no way worth €50bn — or some £3,000 per family in Britain. If she had agreed to that the chorus of demands for her resignation would be deafening.

We should pay what we owe, unconditionally. We should pay nothing extra just to talk. We should be willing to pay €45bn or so as part of an overall deal. May’s stated position appears to be that we have not agreed to pay tens of billions of euros just to talk, though we would be willing to pay €40bn or more as part of a final settlement. Good. I hope she sticks to that.

Andrew Lilico is an economist and political writer