Henry Newman is Director of Open Europe.
In less than two months, EU member states will again meet and decide whether the UK has made “sufficient progress” in Brexit negotiations. If the European Council gives a green light, then the UK can start discussing a transition period and its future relations with the EU. The key stumbling block remains the so-called Brexit bill. It’s now time for Theresa May to give more clarity about what the UK is prepared to pay Brussels. But she must be clear that any money would only be paid if the EU continues to negotiate in good faith, and reaches agreement both on the UK’s withdrawal and the outline of future UK-EU trade and customs relations.
The legal position seems reasonably clear: if there’s “no deal”, liabilities will not be settled. Although David Cameron signed off the EU’s multi-annual financial framework for 2014-2020, EU budgets are agreed annually each calendar year. Yet even though the UK could walk away, leaving without an agreement would be highly disruptive to the economies of the UK and EU, and would (almost by definition) mark a breakdown in relations, which would have serious wider consequences.
In her Florence speech, the Prime Minister successfully shifted the tone of the negotiations. She said that no member state would “pay more or receive less over the remainder of the current budget plan as a result of our decision to leave”. The EU welcomed this clarity but say – with some justification – that it’s still not exactly clear what the UK meant by this, nor what May meant by the “UK will honour commitments…made during the period of our membership”. They say that it’s not possible to negotiate on the basis of lines in a speech, that they need a technical paper.
May seems to be saying that the UK will continue paying, as if we were a member, until the end of 2020 (a year and three quarters after we technically leave at the end of the Article 50 process). The transition, or “implementation period”, should allow the UK to “pay to play” with the EU. But is the Prime Minister also committing to cover a reasonable proportion of other project commitments not yet paid? And, what about, for example, structural funds promised to EU members which run up to 2023, or the pensions of UK nationals currently working in EU institutions? She needs to spell out some more of these details – even if there are still large question marks hanging over them or if they are disputed by either side.
There’s no easy way to calculate the UK’s Brexit liabilities. There’s no single document to point to which clarifies things. A House of Lords report on the matter noted that the “absolute sum of any posited settlement is hugely speculative” and that “almost every element is subject to interpretation”. During the referendum, Vote Leave came under fire for quoting £350 million a week as the UK’s contribution to the EU – a gross figure excluding the rebate negotiated by Thatcher. Some may find it ironic that the Financial Times’ Alex Barker noted, in a Centre for European Reform report, that “some EU officials…want to calculate Britain’s share based on its gross national income alone” – they want to exclude the UK’s rebate when determining the “Brexit bill”.
The UK negotiating team has, rightly, been challenging, line-by-line, the EU’s financial demands. Back in August the Daily Telegraph quoted an “EU source” who was “completely flabbergasted” that a “young man from Whitehall” called into question the EU’s figures on the financial settlement. That “young man” was probably Jonathan Black, a Treasury director – a slight challenge to the simplistic view that Treasury officials are desperate to give Brussels whatever it wants. The UK has, however, not yet published its own determination of our financial commitments. That’s partly because any such document would create obvious political difficulties for the Government, and because the concession would likely have been banked prior to October’s meeting without producing the required breakthrough.
In advance of December’s summit, the European Commission will (again) be asked to determine whether the UK has made “sufficient progress” to switch to discussing trade and the future. That determination is first and foremost political. Of course, when I claimed that “sufficient progress” was not really a technical judgement, Michel Barnier’s adviser Stefaan de Rynck protested that this is “not a finger in the air” decision. But just last week, senior diplomats of a major EU power confirmed to me in private that they insisted on including the phrase “sufficient progress” in the Commission’s negotiation mandate precisely because it was a flexible, not a fixed, judgement.
Given that the decision on “sufficient progress” is political, the UK needs to play the politics carefully. The EU was never going to green light the UK switching to parallel talks at the first opportunity, so there was little point giving further details earlier on the money – a key UK negotiating card. To get the UK over the line in December, May will need to put more on the table. DExEU people are whispering “48” as the upper end of the UK’s potential liability. But that level of commitment or specificity is not necessarily required at this stage. Instead, the Government needs to provide detail about what the Prime Minister has already committed and to show movement on other areas. And if there are some particularly difficult areas, the UK could consider offering to put them to arbitration – long-grassing the issue politically.
It was always going to be difficult for any Prime Minister to sign a cheque without knowing what was on offer in return. That’s why the offer must be contingent on the UK reaching overall agreement with the EU. If we reach an amicable overall agreement and negotiate a comprehensive free trade deal, then settling a reasonable “Brexit bill” will be a price worth paying for a smooth exit and good future relations. And if we show the EU the colour of our money, the pressure from member states on the institutions itself to sign a deal will be all the greater – how else will they balance their books?