The Brexit bill – what is the real issue?

Financial issues, usually referred to as the Brexit bill, remain at the core of Brexit negotiations and are fuelling strong sentiment, particularly on the British side. This is partly because of years of outcry in the UK about the ‘unfair’ gross contribution it makes to the EU budget. The UK has neglected to mention the special rebate or the sizeable transfers made from the EU to the UK.  Politicians (on all sides) have also omitted to mention that the UK is the number-one beneficiary of infrastructure investment from the European Fund for Strategic Investments (the EFSI, or ‘Juncker Plan’), managed by the European Investment Bank (EIB) and guaranteed by the EU budget, and is also one of the main borrowers from the EIB. 

On the EU side, the budget is less of an emotionally charged issue, but one that nevertheless constitutes a core tenet of the negotiations because the EU would like to have a firm commitment from the UK that it will fulfil all the obligations it subscribed to as an EU member state. In principle, the UK agrees on that point; indeed, Theresa May stated in her Florence speech that no member state should be financially worse off due to Brexit. Where, then, is the problem?

As is often the case, the devil is in the detail. What does it mean, in concrete terms, that no member state should pay more or receive less because of Brexit? There is no easy answer to this question because the EU’s budgeting process is highly complex and involves not only an annual budget but also a Multiannual Framework (MFF), which stretches beyond March 2019.  But the general principle towards which both sides seem to be converging is that because the UK was a full member when the current MFF was drawn up, it should, as far as possible, pay its share of the contributions agreed some years ago. And – this is often overlooked – it should also receive its share of the expenditure. Unfortunately, today, it is impossible to put precise figures on how much the contributions beyond March 2019 will be and how much the UK will receive.

One reason for this is that much of the multiannual spending has not yet been paid. This is recorded as Reste à Liquider (‘RAL’), or outstanding commitments. It is a figure representing potential liabilities from all programmes that may become actual payments if ongoing projects are completed or if others materialise, which today runs into hundreds of billions, but which in two years might be much less. Moreover, the details of how the money is spent are decided each year in the annual budget, which can then lead to small differences in comparison with what had been planned under the MFF.

But the real outstanding question is this one:  should one call payments that are to be made after March 2019 a Brexit bill, even though, in reality, they represent just the fulfilment of commitments made earlier, when the UK was a member of the European Union?