Brexit and the EU Budget (EUC Report)

Debate between Lord Butler of Brockwell and Lord Davies of Stamford

Thursday 6th April 2017 Lords Chamber

[Lord Butler of Brockwell]

I accept that but the point is, as the noble Lord has said, that the budgets for the periods after we leave have not yet been set so we are not committed to them. The annual budget for 2019 and 2020 has not been set, so I regard any claim on the UK in respect of those years as weak. As paragraph 46 of the report points out, this view seems to be shared by the German Finance Minister, Wolfgang Schäuble, who has said that it will be necessary to negotiate a new MFF on the assumption that the UK contribution ceases in 2019—when we depart from the EU. Continuation of the UK’s payment under a multilateral financial framework that continues after we have left is not in fairness a strong claim on the UK.

The second element of a possible EU claim is the commitments made in budgets to which the UK has been a party, which will remain to be paid after March 2019—the so-called reste à liquider, or remainder to be liquidated. Like others, I regard this claim as stronger. There is probably no legal obligation to make these payments after the UK has left the EU, but it may be argued that there is a moral obligation since the commitments were entered upon and budgeted for while the UK was a member.

The EU estimate of the commitments that will be outstanding at the end of 2020 is £254 billion. We do not have an estimate for the outstanding commitments at the end of March 2019, but since commitments contracted for but not paid tend to diminish as the MFF wears on, the figure at the end of March 2019 for outstanding commitments may be higher. However, as has been pointed out, some of these may never materialise. Moreover, some commitments are to the UK itself. These should be netted off, after which the UK share of commitments to other partners is unlikely to amount to more than £10 billion. If the UK were to agree to meet these it would be sensible to do so not in a lump sum but over the next few years as the commitments materialise.

It is right to add that the respected Brussels think tank the Bruegel Institute produces a much larger figure for commitment outstanding, including a large element under the heading, “significant legal commitments”. These are commitments pledged in legal terms but not yet budgeted for. Since they are expected to be budgeted only over a long period, they are not included in the EU’s balance sheet nor in the reste à liquider. In this case it seems difficult to argue that the UK has any liability for these unbudgeted items after leaving the EU.

Thirdly, there is the possibility of a claim based on pension liabilities for past or present employees of the EU or its institutions. Here I agree with the noble Lord, Lord Thomas of Gresford, that this is a weak basis for a claim. UK nationals constitute some 4% of EU staff at present and have never been more than 8%. The Commission currently estimates its actuarial liability for future pensions at €63.8 billion. However, pensions are paid out of each year’s budget. Employees make a one-third contribution to them. Like the noble Lord’s, my view is that, on leaving the EU, the UK has no greater liability to contribute to the annual pension bill that someone leaving a club would have to contribute to the pensions of past and present employees. The nationality of these employees is immaterial. Even if the UK were to make an exit contribution based on the proportion of UK nationals employed, and if the EU’s calculation of a total actuarial ability of €63.8 billion is right—the Bruegel Institute puts it much lower than that—it would not amount to more than a handful of billion euros.

[Lord Davies of Stamford]

Does the noble Lord agree that there are two quite separate issues here? One is potential liability for pensions to be paid—there, I rather agree with the noble Lord’s assessment. The second issue, which is quite specific to this instance of a country leaving the European Union, is the effect on British national employees of the European institutions, who will lose their jobs because it is a condition of their employment that they are a citizen of an EU member state. They will cease to be on the day on which we leave the European Union. They will therefore be fired and have to be given redundancy payments. Do we not have the moral responsibility of making sure that those payments are made? We cannot expect our partners to pay those sums of money, and we certainly cannot expect those employees who are fired for no better reason than their nationality not to receive proper compensation.

[Lord Butler of Brockwell]

With respect, I do not take that view. These are employees of the EU and its institutions. If they are fired for whatever reason, their redundancy payment and severance terms will be determined by their contract and negotiation with the EU and the EU institutions. That does not seem to me a matter for which the UK has a liability.

I again agree with the noble Lord, Lord Thomas, about the other side of the balance sheet—namely, the EU’s assets. I shall not discuss those in any detail, because I doubt whether the EU would agree to distribution of these to a country departing from the EU any more than it would require a contribution as an entry fee from a country acceding. One exception to that is the UK’s stake in the European Investment Bank which, if it has to be surrendered, could be worth anything from €3.5 billion to €10 billion to the UK.

Unless there are other elements of a claim for an exit payment which neither the EU Committee nor others have thought of, it seems clear to me that any reasonable claim that can be made will not amount to anything like the €60 billion figure attributed to M. Barnier and his team. It follows that, leaving aside the legal aspects, UK negotiators do not have a great deal to fear from a negotiation on this subject. In a reasonable world, it should be possible to make sufficient progress to open the way to negotiations on a future trade relationship.

There is one final piece of advice that I would give—again, this point was made by the noble Lord, Lord Thomas. By all means, let us seek to reach agreement on the principles of an exit payment and a future financial relationship, but it would be unwise to agree the details, the actual figure, until the principles of a trade relationship are also agreed. This is an area where, whatever the sequence of the negotiations, nothing should be agreed until everything is agreed.