Numbers game: the sticking points in the scrap over the Brexit bill

Helen Cahill
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The House Of Lords Votes On Brexit Bill Amendments
Britain will have to settle its bill with the EU before discussing future trade (Source: Getty)

In the coming months, UK and EU negotiators are set to lock horns over one of the most bitter aspects of their divorce: the Brexit bill.

Estimates for how much the UK should pay vary wildly, ranging from €25bn to €100bn. The EU's estimate is at the top end of the range, but Brexit secretary David Davis has pledged to challenge Europe's assumptions "on a line-by-line, almost word-by-word basis".

Read more: Boris says there isn't "any case" for paying a large Brexit Bill

An overview of some of the key items on the bill reveals how fraught the talks over the financial settlement are likely to become.

Outgoings 1: The EU's credit card

A key British liability will be its share of the spending commitments the EU has made, but has not yet paid for, which can broadly be understood as the EU's credit card.

The EU has a pipeline of works and in any given budget year the member states pay to carry these out.

The promises made in 2014-20 are scheduled to be paid for by 2023. By the end of next year, the outstanding bill for these spending commitments will total €241bn.

Read more: David Davis: €100bn Brexit bill? No way Jose

The UK is responsible for 12-15 per cent of the EU's budget, and this is the figure which will be used as a basis for calculating Britain's share of assets and liabilities. So, the UK's portion of the credit card bill will be between €29bn and €36bn.

However, the EU's Brexit negotiator Michel Barnier will also push for the UK to put towards investments that have not yet appeared on the credit card.

Barnier and Davis met for Brexit talks last week (Source: Getty)

Britain has made legal promises to fund spending projects that will arise in the EU budget after 2019. Barnier will argue that the UK jointly approved this spending, which will go towards rural developments and other projects, and that Britons should pay their share of this €143bn commitment.

Many of the lower estimates of the UK's financial obligations to the EU do not take this sum into account. The idea of Britain continuing to pay for projects across Europe after Brexit is likely to be unpopular, but Barnier will feel confident that EU law is on his side.

Outgoings 2: EU pensions

The total pension liability for the EU's bureaucrats is estimated at €63.8bn, meaning the UK's share will come in between €7bn and €10bn.

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The prospect of paying for these retirement benefits is likely to be unpopular, especially as the civil servants of the Commission and other EU bodies receive relatively generous payouts, amounting to €67,000 a year.

The British negotiators may argue they should only pay for the British officials working in Brussels, but the Commission is likely to retort that the UK has benefited from the efforts of all its workers, and therefore should be willing to pay for all of them.

Assets 1

The EU's assets are worth more than €20bn including the EU's property and its satellite programmes. The UK is entitled to its share of these assets. Britain's share of the spending commitments on the EU's credit card will also be taken off its overall bill.

However, there will no doubt be arguments about the precise amount the EU's assets are worth, and the size of the UK's stake.

Assets 2: The Thatcher rebate

Aside from assets, the UK can also expect to have its bill reduced through the Thatcher rebate.

Margaret Thatcher secured a rebate from the EU budget in 1984. Under the terms of the agreement, the UK's contributions are reduced by roughly 66 per cent of its net input the year before.

Thatcher negotiated the deal on the basis that Britain was making an outsized contribution to the EU's spending on farming.

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This will be a contentious point for the negotiating teams in Brussels, in part because it is such a source of political pride for the Conservative party.

The last payment of between €5bn and €6bn is due to come in in 2019, after Britain leaves the EU, providing that talks do not end in one side walking out, a course of action Davis has threatened to take if negotiations do not go his way.

How are talks progressing?

Barnier has organised the negotiations to try to extract as much as he can from Britain in the financial settlement. Knowing Britain is keen to discuss its future trading relationship with the EU, he has been insisting this cannot happen until the bill is settled.

However, in his testimony to the Lords select committee earlier this month, Barnier hinted there was some room of manoeuvre, and that trade talks could start later this year.

"I am in favour of parallel negotiations, but parallels do not start at the same point, if you see what I mean. That is about it," he said.

"We are here, and the parallel will start a bit further down the line in October or November, when we have solved some of the other issues and the principles, not the details."

Read more: Barnier: UK must pay up before Brexit deal can be agreed

He made those comments before negotiations on the financial settlement began, however, and he may now feel differently.

The second round of talks ended in disappointment last week, with Barnier demanding his British counterpart do more to clarify the UK's position.

And Davis was particularly frank in his assessment of how Brussels has approached the Brexit bill so far, saying the EU must be more flexible for talks to move forward.

Ultimately, Davis needs to come out with a number he can sell to the public; a number that won’t embarrass him if, for example, it is pasted on the side of a red bus.

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