European Commission President Jean-Claude Juncker said it will be “hefty." British Trade Secretary Liam Fox called the notion of it “absurd.” It’s the bill that the European Union reportedly wants to impose on the U.K. when Prime Minister Theresa May’s government carries out its plan to leave the bloc. The charge could be about 50 billion pounds ($62 billion), more than the British defense budget, according to Juncker. The topic figures to be one of the early flash points and tone-setters in the Brexit negotiations, ultimately shaping how amicable the breakup is and what trade deal May is able to land.
1. Why is there a bill?
European Commission negotiator Michel Barnier wants the British to cover their liabilities and commitments to the EU budget -- perhaps even the ones which don’t come due until after Brexit. “There is no price to pay, but we must settle the accounts," Barnier said on March 22. Commission spokesman Margaritis Schinas likened it to leaving a bar, but still needing “to pay for the round you ordered."
2. What charges are on the bill?
They include pension payments promised to EU officials, guarantees on loans such as the bailout of Ireland, and spending on infrastructure and structural funds agreed to but still to be financed.
3. How much might Britain owe?
It could be higher or lower than the 60 billion euros ($65 billion) making the rounds. Oxford Economics suggests the bill should be closer to 47 billion euros. The Centre for European Reform said it could be 73 billion euros. Bruegel, a think tank, says the U.K. could seek to lower the bill by claiming a share of joint EU assets that could total as much as 154 billion euros.
4. Is this just about money?
Partly. EU officials say it’s a matter of fairness -- not punishment -- and is an important precedent to establish in case other separatist movements push for a split from the EU. But the money does matter. Once Britain leaves, the EU will have to plug a hole in its budget of about 10 billion euros, which will mean increasing contributions from the remaining members, cutting spending or finding alternative sources of revenue.
5. What do the British say?
The Times newspaper reported on March 4 that government lawyers find no legal obligation for the U.K. to pay up, which would strengthen May’s hand. One official likened Brexit to stopping paying a membership fee once you leave a golf club. A study by the House of Lords also questioned whether there was a legal requirement to pay and calculated the bill could be as low as 15 billion euros. Brexit Minister David Jones pointed to that report and said it had “not gone unnoticed." Fox says the bill is inappropriate because the U.K., in choosing Brexit, is simply "using a legal power under the Lisbon Treaty" that everybody "freely entered into." May has said she won’t pay for any EU projects signed after last November and that Brexit will mean London stops sending “vast” sums of money to Brussels. Still, she is open to contributing to “appropriate” programs and may be willing to chip in more in return for access to the continental market.
6. How will the bill affect Brexit talks?
It could determine early on how rancorous the negotiations will be. Reaching an agreement is vital if the two sides are to start discussing a deal on their future relationship. That’s why EU officials are demanding to deal with the divorce details first. “We have to resolve the British budget issue straight away,” Sandro Gozi, Italy’s junior minister for European affairs, said in a March interview. The British would prefer to address them and long-term ties at the same time. If May agrees to pay a large amount -- to avoid a disruptive exit and to preserve trade ties -- she’d invite criticism at home. If a deal is reached to spread payments over time, Brexit hardliners will say the split isn’t happening fast enough. Ultimately it’s all about leverage in the talks.
7. What’s the worst-case scenario?
The Europeans deliver a hefty bill, May balks, and talks break down. A government official has said there is a 30 percent chance that negotiations collapse. If the two sides can’t rectify their differences within two years, then the U.K. would fall out of the EU without a pact, resulting in World Trade Organization tariffs on U.K.-EU trade. Failure to find an agreement means the issue may also end up before the International Court of Justice.
The Reference Shelf
- Q&As on May’s vision for Brexit, what makes a "hard Brexit" and Brexit’s detour through the U.K. Parliament.
- How the U.K. might maximize its negotiating position.
- Britain’s bar tab shouldn’t delay Brexit talks, Bloomberg View’s Mark Gilbert writes.
- A Bloomberg View editorial on what May needs from Parliament.
- A QuickTake explainer of Brexit’s basics.
- Europe is getting tired of Brexit "chaos."
- Sign up for Bloomberg’s Brexit Bulletin newsletter.
- Follow @Brexit on Twitter for full coverage of Britain’s exit from the EU.