Brexit divorce bill: what does the UK owe Brussels?

Britain’s Brexit divorce bill has been at the heart of the debate over leaving the EU for more than three years.

Along with citizens’ rights and the Irish border it was one of the major points of contention between Brussels and the UK government as the two sides sought to hammer out a withdrawal agreement.

After much wrangling, a total of £39bn was eventually agreed in order to cover outstanding budget contributions and payments into EU institutions during the two-year “transition” period.

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Yet having rejected Theresa May’s Withdrawal Agreement, her successor in Downing Street, Boris Johnson, last month put Britain on a collision course with Brussels by warning he would slash more than £30bn from the EU divorce bill in the event of a no-deal Brexit.

So what exactly does the UK owe Brussels? And why haven’t its past payments already covered this?

Why does the UK have to pay the EU anything?

Britain’s membership fees over the past four decades have gone towards financing the EU and its projects, including some future plans to which the UK has already committed to contributing. There are also a few other liabilities incurred during the UK's membership that will need to be funded.

The Institute for Government and the Financial Times define four areas that make up the gross bill:

• · payment for projects that have been committed to but not yet fully paid for
• · pensions for EU civil servants and politicians
• · outstanding loan payments and money to cover the potential liability of loan repayments not being made
• · costs of the withdrawal itself

Set against this, the UK would be entitled to any outstanding budget rebates, payments for EU-funded projects in this country, eventual repayments on loans and from contingencies set against them and, potentially, a reflection of its share of assets such as buildings.

What happens if there’s no deal?

Brexiteers have long claimed that crashing out of the EU without a deal would mean that some or all of the £39bn divorce bill set for Brussels would instead remain on the Treasury’s books.

While former chancellor Philip Hammond previously said the UK would still be obliged to pay the majority of the £39bn bill without an agreement on trade, his successors in government have taken a decidedly more confrontational approach.

During the Conservative leadership campaign, Johnson suggested the entire £39bn would be retained in the hope of using it as leverage to win a better future trading relationship from the EU27, saying: “Money is a great solvent and a great lubricant.”

But The Guardian says “Downing Street appears to have conceded that legal obligations for past liabilities may mean up to a quarter of it may still have to be paid”.

In August the prime minister told European Council President Donald Tusk that the UK will hand over less than £10bn if the EU fails to do a deal that does away with the Northern Ireland backstop.

A senior government source said: “The PM has always said it was a huge mistake to agree to the divorce bill before any Brexit deal had been finalised. If there is no deal, Brussels will need to organise a whip round - they’ll need to plug a huge hole from our contribution and they’ll need billions to keep Ireland afloat.”

This contrasts with an EU official speaking to the Financial Times who said the money would be due even in the event of a no-deal Brexit, since it was linked to financial commitments entered into by Britain.

“This is all about the obligations of the UK. For us, it’s due whatever the circumstances. It will be calculated on the exit of the UK,” they added.

Is the UK legally obliged to pay?

A House of Lords committee concluded that, once the UK leaves the bloc, any treaties relating to the EU no longer apply and so there is no legal mechanism to force the country to pay.

Legal opinion on this is divided, however.

According to The Times, Johnson ordered government lawyers to calculate how much of the £39bn the UK is legally obliged to pay, and they have concluded the figure could be as low as £7bn.

Full Fact, meanwhile, states: “It’s not clearly set out that the UK would be obliged to pay anything if we left with no deal, but the EU could take the case to the International Court of Justice on the grounds of the UK’s repeated commitments to pay.”

There is also an argument that Article 70 of the Vienna Convention on the Law of Treaties will still apply and oblige the UK to pay what is deemed to be due under existing EU agreements.

Beyond the legal issues, there are other problems associated with not paying the bill, says Channel 4’s FactCheck website.

“If we did not pay our debts […] there would be political consequences when we seek to negotiate trade agreements with new partners,” Emily Reid, professor of international economic law at Southampton University, told the site.

“In my view we would be both legally and morally at fault were we to do so, which would have repercussions in our future dealings with potential partner states,” she added.

European officials have even suggested that the EU would refuse to negotiate a trade deal with the UK if the government reneged on the Brexit bill.

Brussels sources have warned that future trade talks would be blocked until the UK agreed to a settlement, with one official calling the financial settlement a “totemic” issue for EU member states.

“The message will be ‘honour your debts, or we are not even going to start talking about a trade deal,’” said the source. The Guardian said this reflected a “widespread view among diplomats”.

Echoing these strongly held sentiments, Jean-Claude Piris, a former head of the EU council legal service, tweeted: “If the UK refuses to pay its debts to the EU, then the EU will not accept to negotiate a trade agreement with the UK.”