UK faces Brexit divorce bill of up to €20bn

Britain is facing a divorce bill from the EU for as much as €20bn, according to a Financial Times analysis that shows the bloc’s shared budget is emerging as one of the biggest political obstacles to a Brexit deal.

More than €300bn of shared payment liabilities will need to be settled in the divorce reckoning, according to EU accounts. It is a legacy of joint financial obligations stretching back decades — from pension pledges and multi-annual contracts to commitments to fund infrastructure projects — that Brussels will insist the UK must honour.

The sheer size of the upper estimate, which some EU-27 officials reckon is too low, threatens to poison the politics of the break-up and derail a Brexit transition and trade deal, according to several senior European figures involved in the process. The €20bn upper estimate covers Britain’s share of continuing multiyear liabilities, including unpaid budget appropriations of €241bn, pensions liabilities of €63.8bn and future contractual and other spending commitments totalling about €32bn.

British Eurosceptic MPs are likely to react badly to the news that UK taxpayers might have to pay billions of pounds to Europe as the price of Brexit. One minister said: “It will have to be explained very carefully, to explain what we are getting in return for market access.”
Iain Begg, a London School of Economics expert on the EU budget, who described the premise of FT calculations of the legacy bill as “completely sound”, said the budget fight was shaping up to be a “battle royal”.

The FT’s analysis is the first attempt to quantify fully the UK’s legacy liabilities in the EU budget. To date, economic analyses of Brexit undertaken by bodies such as the UK Treasury have not taken full account of the cost of untangling EU budget commitments.

The precise withdrawal bill is impossible to calculate and will depend on a political deal. However, officials from four EU-27 countries who reviewed the FT’s estimates said they reasonably represented the sums at stake. Some questioned certain assumptions that reduced Britain’s exit bill, arguing that the UK must make good on all its spending promises, not just to 2019 but to the end EU’s long-term budget in 2020.

Brexit blows a hole in the EU’s budget, with potentially far-reaching political consequences. It confronts Germany, Italy, France and other net contributors with the dilemma of filling any gap or scrapping programmes that Brussels and eastern and central European countries see as legally binding promises. Britain’s €20bn reckoning would cover only spending already approved on projects within the EU-27, not the future shortfall created after 2019 by Britain’s withdrawal from the long-term EU budget.

It also excludes EU spending on UK organisations. Philip Hammond, UK chancellor. Brexit campaigners claimed the UK could save £350m a week by leaving the EU. But one former UK minister said: “We could actually end up paying more into the EU budget. That will be a big story in the next two years.”