UK payments to EU budget could end with Brexit but political consequences would be profound

This is one conclusion of a report, Brexit and the EU budget, published today by the House of Lords EU Financial Affairs Sub-Committee into the consequences of Brexit on the UK's contributions to and receipts from the EU budget.

The Article 50 process envisages a withdrawal agreement being reached within two years. Both sides should recognise the gravity of a no-deal Brexit and should be willing to reach a fair agreement. An inability to reach agreement on the budget will undermine the Government's aim to negotiate market access on favourable terms.

However, in the absence of an agreement under Article 50, the Committee finds that the UK would be subject to no enforceable obligation to make any financial contribution to the EU budget. Though this would severely damage the prospects of reaching friendly agreement on wider issues, it provides an important context to the negotiations.

Commenting on the report, Baroness Falkner of Margravine, Chair of the EU Financial Affairs Sub-Committee, said:

“The UK appears to have a strong legal position in respect of the EU budget post-Brexit and this provides important context to the Article 50 negotiations.

“Even though we consider that the UK will not be legally obliged to pay in to the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations. The Government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations.

“The forthcoming negotiations will be more than just a trial of strength. They will be about establishing a stable, cooperative and amicable relationship between the UK and the EU. This will not be possible without good will on both sides.”

Findings from the report include:

• The range of values in circulation for the UK's potential ‘exit bill' indicates that the absolute sum of any posited settlement is hugely speculative. Almost every element is subject to interpretation.
• On the basis of the legal opinions we have considered we conclude that, as a matter of EU law, Article 50 of the Treaty on European Union (TEU) allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget and related financial instruments, unless a withdrawal agreement is concluded which resolves this issue.
• Individual EU member states may seek to bring a case against the UK for the payments of outstanding liabilities under principles of public international law, but international law is slow to litigate and hard to enforce. In addition, it is questionable whether an international court or tribunal could have jurisdiction.
• Even though we consider that the UK will not be legally obliged to contribute to the current Multiannual Financial Framework (MFF) after Brexit, we expect the issue of continuing payments to be a factor in withdrawal negotiations. The Government will have to set the financial and political costs of such payments against potential gains from other elements of the negotiations, such as continued market access for goods and services (without the imposition of tariffs or other barriers), smooth transitional arrangements, and good will in the wider negotiations.
• The UK's 'share' of the EU budget that could be used to determine a share of EU liabilities could be based on the UK's: average gross contribution (around 15% of EU revenues); average gross contribution minus the rebate (12%); average gross contribution minus the rebate and public sector receipts (8%); average gross contribution minus the rebate and public and private sector receipts (5-6%); population as a proportion of the EU total (12.5%).
• In 2014 the UK contributed £19.1 billion to the EU budget. It got back £4.4 billion as a rebate, £4.3 billion in public sector grants, £1.4 billion in private sector grants and £0.7 billion for the administration of duties and levies (£10.8 billion in total).