Why it is fair that the UK would have to pay into the EU budget after Brexit

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%.Screen Shot 2016-12-16 at 12.25.46.png

[Source: http://ec.europa.eu/budget/news/article_en.cfm?id=201611170947]

Commitments

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.

Payments

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.

The UK

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.]

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2 thoughts on “Why it is fair that the UK would have to pay into the EU budget after Brexit

  1. Great post. I just would like to comment on the question of the pensions of EU staff.
    I think it is a mistake to think that the UK is only liable for the pensions of EU staff who are also UK citizens. After all, the salaries and pensions are paid from the budget of the EU. The Member States contribute also to the total budget of administrative costs, they do not pay only for the salaries of their own nationals.

    To put it simply, the Member States do not pay their contribution to the pension scheme of EU staff; only the pension contributions of the staff go into the general budget, and the Member States guarantee payment of the pensions, as per the Staff Regulations of Officials and the Conditions of Employment of Other Servants of the European Economic Community and the European Atomic Energy Community. Here are the relevant articles.

    Article 83
    1. Benefits paid under this pension scheme shall be charged to the budget of the Communities. Member States shall jointly guarantee payment of such benefits in accordance with the scale laid down for financing such expenditure.

    2. Officials shall contribute one third of the cost of financing this pension scheme. The contribution shall be 9.25% [it’s 9.8% now] of the official’s basic salary […]. It shall be deducted monthly from the salaries of officials. The contribution shall be adjusted in accordance with the rules laid down in Annex XII.

    Article 83a
    1. The scheme shall be kept in balance in accordance with the detailed rules set out in Annex XII.

    Article 83a means that the contributions to the pension scheme are and have been enough to cover for the payments of future benefits.

    Like

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