We originally looked at the potential EU exit bill in May 2017, before the negotiations started. A year later, the UK and the EU have agreed a method for working out the financial settlement, and we have updated our analysis accordingly.
The information contained on this page and in the report is correct as of July 2018.
Our original policy insight "Analysing the EU Exit Charge" examined the net amount the UK could be required to pay on exiting the EU, identifying three potential scenarios – from a low scenario of £5bn to a high scenario of £30bn. Each of these were net of the UK’s rebate and of money returning to the UK, but only the high scenario assumed that the UK would continue contributing to the EU’s budget up until the end of 2020.
We have now updated our analysis for the outcome of the negotiations, comparing our high scenario of £30bn with HM Treasury’s estimate of £37bn for the net financial settlement as reviewed by the National Audit Office.
Our findings include:
HM Treasury’s estimate of the financial settlement comprises £21bn to settle financial obligations incurred while the UK is a member of the EU and £16bn for the transition period.
The components of the financial settlement are broadly in line with our original analysis, comprising committed and other spending up until the end of 2020, approved spending not yet paid, pensions and other liabilities, offset by the rebate, money coming back from the EU, and recoveries of assets.
Changes in the exchange rate used and other changes in estimates broadly offset each other, reducing the estimate by £1bn, while there is a reduction of £3bn from a difference in the timing of payments between before and after 29 March 2019.
The most significant difference arises from the UK’s 16% shareholding in the European Investment Bank. We assumed that the UK would receive its full share of net assets, including accumulated profits. Instead the UK will get back only its original investment, increasing the net cost of the financial settlement by £7bn.
Our analysis indicates that the change in the effective exit date from 29 March 2019 to 31 December 2020 adds another £3bn, while we estimate that the exclusion of "operational assets" is a concession worth around £1bn to the EU.
As we expected, the UK will not pay upfront towards contingent liabilities as part of the financial settlement, but remains exposed until the related loans are repaid or litigation is resolved.
This is still a forecast and so the final amount to be paid is likely to be different to this estimate. Although the risks should be relatively small, and may well offset each other in practice, the final cost of the financial settlement could end up outside the rather narrow range of £35bn to £39bn put on the estimate by Treasury.
The net financial settlement (excluding transition) is equivalent to just over £300 per person, or nine days of government spending.
Talk Accountancy blog
ICAEW's Director, Public Sector, Ross Cambell, talks about the outcome of the negotiations.
This video accompanied our original policy insight and is based on a low scenario of £5bn, a central scenario of £15bn and a high scenario of £30bn for the financial settlement, rather than the £37bn latest estimate from HM Treasury.