UK newspapers have been awash with outrage over Michel Barnier, the Commission’s chief negotiator, pointing out that the UK will face a bill of £50bn for leaving the EU (e.g. http://www.telegraph.co.uk/news/2016/12/15/britain-will-handed-50bn-exit-bill-eu-theresa-may-triggers-article/ ). This outrage can however only be either mock, or based on a lack of understanding of how the EU budget works. I won’t go into the number itself, as estimations seem to vary between EUR 40bn and EUR 60bn at the moment, but here’s a quick explanation of why the EU budget system makes a large exit bill inevitable and equitable, and not, as some seem to think, an act of retribution by the EU.
The EU Budget
The annual EU budget is based on the “Multi-annual Financial Framework”, or MAFF, which is agreed by Council (All Member States) for a 7-year period. The current MAFF runs from 2014-2020. You’ll probably remember that David Cameron, the PM at the time, (rightly) claimed credit for a freeze in this for the first time ever in 2013 (https://www.gov.uk/government/speeches/prime-minister-david-cameron-statement-on-the-eu-budget ). The MAFF sets out the maximum levels in each of the areas of spending for the EU over that 7 year period.
Each year’s Annual Budget s then proposed on the basis of the MAFF, and agreed by Council (All Member States) and the European Parliament.
The 2017 budget is here. The UK’s share of this, after the rebate, is approximately 14%.
Unlike many national budgets, it includes two columns – Commitments and Payments.
Commitments represent, as the title suggests, the amount that the EU can commit to spending during the budget year. These commitments usually take the form of Commission proposals for individual projects and programmes. Member states (and in some cases the EP) are then asked to give their comments and consent to the projects and programmes through ‘commitology’ committees that their representatives attend. These are usually government experts, mandated to vote for or against proposals by their department’s Minister.
Projects and programmes of course often last more than one year though, so the EU budgetary system is set up so that the actual payments related to a commitment can be made over the 2 or 3 year period following the year the commitment was made. The is known as the N+2 or N+3 rule, with N being the commitment year. Whether the period is 2 or 3 years depends on the area, and the individual piece of EU law the action is carried out under. For example, Structural funds have the N+2 rule. This has the benefit for budget discipline of meaning that, if the committed funds are not spent within N+2 years, they are returned to the EU budget and not spent. (The Scottish Government’s helpful explanation of this is here: http://www.gov.scot/Topics/Business-Industry/support/17404/Nplus2Rule )
So, for example, a programme that is committed to in 2016 will appear as a debit in the Commitments column of the 2016 budget, but it will only appear in the payments column in 2017, 2018, and possibly 2019, depending on the payment schedule of the project and the N+ rule that it falls under. So, an given annual budget’s payments column has to cover payments for projects committed to in the previous three years.
So, what has the UK committed to? It committed to pay 14% of the 2014-2020 Multi-Annual Financial Framework. This means that it would have to pay for the commitments and payments made in 2020, even if it were to leave the EU in 2019. The UK agreed to this framework in 2013.
It also means that, if it were to leave in 2019, it would have to pay its share of the outstanding payments for commitments made in 2018, 2019 and 2020. This means that it would have to pay its share of the payments part of the budget until 2023 at the earliest, and more probably 2024 (There are always some projects and programmes, which, for good reason, and with the consent of Member States, have their payment deadlines extended).
As for the number, which I know I said I wouldn’t deal with, it’s easy to see how, with the UK’s liabilities being 14% of an annual budget’s payments of, in 2017, EUR 134.5 bn, this ratchets up to around EUR5 50-60 bn when the additional years are added.
So, this is not revenge or retribution, but a fair split of the cost of things the UK has committed to and agreed at the very highest level to pay for. If I cut up my credit card, it does not mean that I am exempt from paying my bill. Neither is the UK government.
p.s., this is all before we even get into the question of what happens to the UK’s membership of the European Investment Bank (EIB).
[Edit, 06/04/17: This does not take into account the pensions of UK citizens who are EU staff, which the UK is also liable for. This would need to be included as a one off settlement, or as a binding commitment to pay these as they are drawn.]