Explaining the Brexit Bill—and Whether Britain Will Pay Up

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U.K.'s May Sees 'Continued Cooperation' With EU

European Commission President Jean-Claude Juncker said it’s about 60 billion euros ($71 billion). Britain has so far offered about a third of that amount, and even that’s too much for hardliners who say it doesn’t owe a “brass farthing.” It’s the itemized bill the European Union wants to hand the U.K. as it leaves the bloc. It’s the most controversial matter in the Brexit talks, and has pushed them to deadlock.

But why is there a bill at all? The basic argument is that Britain signed up to spending when it was a member of the club and those liabilities don’t disappear when it leaves. Juncker likens it to ordering a round of drinks and then walking off without paying your share of the bill. To put the number in context, 60 billion euros would be more than Britain’s annual defense budget.

1. What’s the money for?

Firstly there’s Britain’s share of the current EU budget. The spending plans go in seven-year cycles so this one runs through the end of 2020 -- almost two years after Britain leaves the bloc in March 2019. This is the relatively easy bit: Prime Minister Theresa May said in September that the U.K. would continue to pay into the budget for two years after leaving in return for continued access to the EU’s single-market during that time. That would mean about 20 billion euros. But there are more liabilities, and May has only offered a vague promise that Britain will meet them.

2. What else is on the bill?

One of the biggest items is pensions. The EU’s liabilities for the pensions of EU officials and members of the European Parliament rose 5 percent last year to 67.2 billion euros. Britain’s share of that would be about 10 billion euros. But U.K. Brexit Secretary David Davis has made clear he’s not convinced that the U.K. is on the hook. He vows to go through the EU’s demands line by line.

3. Is there more that could be added?

Yes. The EU’s total liabilities amount to 234.8 billion euros. Britain’s share of that could be anywhere between 18.7 billion euros and 35 billion euros, depending on how the two sides agree to calculate it. The EU wants the U.K. to pay its share of the bloc’s international aid budget, as well as for smaller items that irk U.K. negotiators such as funding teacher salaries at schools for European officials’ children. Other possible items would be guarantees on loans such as the bailout of Ireland, and spending on infrastructure and structural funds agreed on but still to be financed. The EU has also suggested Britain should help cover the cost of programs to improve democracy and the rule of law in nations including Turkey, as well as the cost of relocating EU agencies, such as the European Banking Authority, from London.

4. Where does the bill fit into the larger Brexit talks?

It’s the main sticking point and brought the two sides to an impasse. The EU won’t move on to discussing a future trade relationship until it has seen “sufficient progress” on three divorce issues, the trickiest of which is the bill. It’s not clear what sufficient progress means, and neither side expect a number to be agreed on yet. The U.K. says any offer on the financial settlement has to be made in the context of the future relationship with the bloc. May’s team say she has already taken a political risk with her offer in September, which was made during a high-profile speech in Florence, and the next step has to come from Brussels. Offering too much on the bill could end her career.

5. How much might Britain owe?

Though 60 billion euros is the number making the rounds, there are several rival estimates. Oxford Economics suggested 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 offset part of the bill by claiming a share of joint EU assets that could total as much as 154 billion euros. Chief EU negotiator Michel Barnier said the EU won’t agree to that. The Institute of Chartered Accountants in England and Wales, which included such offsets in its calculations, says the net cost to the U.K. could be as low as 5 billion pounds.

6. What is the U.K.’s position?

May said in her Florence overture that the U.K. would “honor” its commitments. A government official said this meant she was open to discussing financial pledges beyond the current budget. She also said Britain would be willing to pay to participate in joint science, education, security and cultural projects. That overall offer would amount to about 40 billion euros, according to two people familiar with the divorce talks. The U.K. has never publicly put a number on the bill, and is still avoiding detailed discussions of where it thinks it’s on the hook.

7. Is there any wiggle room?

Not much. However, EU officials are aware that it’s hard for May to explain to voters why there’s a bill to pay -- particularly when Brits were promised during the referendum campaign that Brexit would increase the money available for the National Health Service after years of austerity. So it’s possible that the bill will be sliced and diced and we will never know the total sum, according to people familiar with the process in Brussels.

8. What’s the worst-case scenario?

Talks remain deadlocked and May walks out. Some hardline Brexit supporters in her Conservative Party want her to do this. A Brexit with no deal means the U.K. reverts to World Trade Organization tariffs on U.K.-EU trade and companies suddenly find themselves outside the rules and regulations of the single market that they’ve built their businesses around for decades.

The Reference Shelf:

  • This Bloomberg article looks at the potential chaos of a no-deal Brexit.
  • Brexit Secretary David Davis threatened to walk away if presented with an unreasonable bill.  
  • Britain’s bar tab shouldn’t delay Brexit talks, Bloomberg View’s Mark Gilbert writes.
  • A QuickTake explainer on why Britain voted to quit the EU. 
  • Sign up for Bloomberg’s Brexit Bulletin newsletter.
  • Follow @Brexit on Twitter for full coverage of Britain’s exit from the EU.

— With assistance by Simon Kennedy

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