At the moment there is a wide gulf between what the European Union is demanding – said to be between £53.7 billion (€60bn) and £89.4bn (€100bn) – and the £17.9bn (€20bn) the British Government currently has on the table.
The political pressure is on to get the best possible deal for Britain while Theresa May fights off rebellions from Brexiteers favouring ‘no deal’ and remainers wanting to placate the EU.
But there is a number of ways Britain could bring the divorce bill to £28.6bn (€32bn) according to research in the Financial Times.
Britain could slash the cost of the amount it pays to the EU in its Brexit bill
THE TIMING OF SETTLING UP
By the time the UK is set to leave, March 2019, the EU estimates there will be about £520.5bn (€582bn) of outstanding long-term commitments plus another £74.2bn (€83bn) for other liabilities such as pensions, producing a total of £594.7bn (€665bn).
Britain is expected to honour its share, said to be 13 per cent which is equivalent to £77.3bn (€86.4bn) as well as making commitments to honour its share of another £10.3bn (€11.5bn) for contingent liabilities, such as EU loans to Ukraine.
To date, the UK has offered to make payments for 2019 and 2020 as part of its desire to establish a transition period in an attempt to ease its move to leaving and so keep most of the membership rights.
Here, the actual date of leaving is key.
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After March 2019, the UK does not want to take on any further EU liabilities.
It would not cover any EU commitments signed off in annual budget talks after Brexit takes place.
This amounts to paying what is known as ‘reste à liquider’ – the overhang of unpaid bills by fully leaving in 2019 rather than 2021.
In financial terms this equates to about £8.9bn (€10bn).
Bizarrely not all budget commitments by the EU are actually paid, known as ‘decommitments’ – the obligations it has verbally agreed to but ultimately decides not to honour.
The EU estimates this runs to about 2 per cent in the bloc’s long-term budget while the UK puts the figure closer to 5 per cent.
The higher the decommitment rate, the lower the amount the UK would have to pay.
A question hanging over the issue of pensions is perhaps the most contentious one with some hardline Brexiteers arguing the UK should not pay one penny to prop up the retirement nest eggs of former EU employees.
Britain argues that EU accounts use a misleading discount rate, which is used to calculate the present value of employer pension obligations.
Due to the significant fall in the discount rate due to the low interest rates, pension liabilities have almost doubled since 2007 from £31.3bn (€35bn) and is put at £668bn (€76bn) for 2019.
If a historical average is used for the discount rate — similar to the one the EU uses to calculate staff contributions — the UK believes its share of liabilities would fall from about £8.8bn (€9.9bn) to about £3.9bn (€4.4bn).
Prime Minister Theresa May
LOWERING BRITAIN’S SHARE OF THE BUDGET
Another highly tense issue is just what share of the EU budget Britain should pay.
Currently the EU puts that at about 13 per cent of its total budget using the UK’s average share between 2014 and 2018.
Britain though disputes this figure saying the sharp decline in the value of the pound has made the UK economy appear smaller, relative to other EU countries and so should reduce its contributions.
Britain is said to reduce its share to at least 12.5 per cent or possibly lower. In turn this would produce a saving of £2.2bn (€2.5bn).
EU Commission President Jean-Claude Juncker
RECEIPTS AND REDUCING THE NET FIGURE
The UK also expects to receive some benefits from its time in the EU and gain from the bloc’s spending programme.
UK beneficiaries stand to receive about £10.7bn (€12bn) in funding from commitments made in the EU budget before 2019.
The EU and UK could agree to continue those programmes after Brexit, or remove them from the Brexit bill – this would mean the UK would haveto fund them separately.
Further receipts could come from planned agricultural spending in 2019-20, equivalent to £7.2bn.
German Chancellor Angela Merkel
While Germany has said that Britain has no claim to any of the EU’s assets but the UK says it has a justified bid if it is expected to honour the EU’s liabilities.
Britain could make a claim for its share of EU buildings and satellites – said to be worth at least £1.3bn – and make a claim in a share of the EU’s stockpile of cash, worth a total of £2.3bn.
THATCHER’S BUDGET REBATE
The final element is Britain’s budget rebate, secured by Margaret Thatcher.
The calculation of Britain’s 13 per cent share takes account of the rebate. But the rebate is paid a year late, meaning a refund of about £4.5bn (€5bn) is due in 2019 from the 2018 annual budget.
But the commission does not see this as part of the Brexit bill calculation.