It is unfortunate that the financial details of Brexit are not well understood in the UK. Indeed the persistent public use of the term “divorce bill” is both inaccurate and conjures up the emotional perception of conflict and acrimony.
In reality the process is more a demerger accountancy exercise which, as well as defining the terms of the separation, is critical to further negotiations regarding any ongoing trading relationship.
Essentially, there are just three issues;
First, the EU member states collectively pay into a 7 year multi annual budget (called the MFF). A large part of this budget is used by the 28 nations to invest in long term commitments, for example major infrastructure projects (some of which are in the UK). By nature of these investments financial liability spreads over many years. The liability currently stands at €235.7 billion, of which the British share could be assessed as 8.6% of the total (that being the UK net contribution to the overall budget).
Naturally, before we leave the EU, the remaining 27 states will want to know if it is the intention of the UK to pay its share or whether there is an assumption by the UK that the liabilities entered into by 28 member states will now be paid by 27 states. (Incidentally, that liability is cyclical in nature and, as it happens, will be at the peak of a cycle when we exit the EU in 2019).
Second, this year, as in every previous year, the 28 states will invest 40% of the annual budget in “Structural and Cohesion funds” (in layman’s terms that is investment in the single market and especially the poorer economies and regions). This is not charity but a seed corn investment which, by raising economic activity, returns great dividends to the major European manufacturing countries by creating or expanding markets for them to sell their goods.
When we leave the EU in 2019 the remaining 27 states will continue to invest in the emerging economies and the single market. Naturally they will wish to know whether the UK’s ambition of “seamless, tariff free, borderless continuity” of trade with the EU27 includes shared investment or not.
Finally, this year, as in every year past, the UK will fully participate in joint European programmes. For example, Erasmus (student exchange programmes), Horizon 20:20 (universities and research), Galileo (satellite navigation and information systems), ITER (nuclear fusion), Euratom (nuclear exchange) or the European Space programme.
In the past, the cost of these programmes has been included within our overall EU membership subscription. On the presumption that the UK wishes to continue to participate in these collaborations, the EU 27 will need to know if, and how, we intend to contribute. To give a specific example of the benefits of this collaboration, one need look no further than the area of Research and development, (e,g. Horizon 20:20). The EU allocates research funding on the basis of merit. Thanks to the excellence of UK universities and research facilities the UK, having contributed 8.6% of the general budget, actually receives 19% of all EU funding.
The purpose of all this is to illustrate that, far from an emotional argument about a “divorce bill”, the financial settlement is much more a demerger accountancy exercise where detail matters.