Brexit and the EU Budget (EUC Report)

Lord Haskins Excerpts

Thursday 6th April 2017 Lords Chamber

[Lord Haskins (CB)]

My Lords, the series of House of Lords inquiries about the impact of Brexit in recent months have been illuminating and made a powerful contribution to the national debate on the subject. They have provided balanced analysis and information, which has been seriously lacking elsewhere. This report is no exception, although one of its conclusions is proving rather contentious and raising a head of steam. My comments on the report are those of a business person, rather than a parliamentarian or, indeed, a lawyer.

Four major factors have determined the Brexit vote. All of them are now being subtly reassessed by the Government. The first was to reduce drastically migration from the EU. It is now clear that tackling this in the short term would have serious economic consequences, which Ministers seem to be beginning to recognise, and only the most rabid Brexiteers would ignore. The second was to take back control. It seems that the great repeal Bill will say, “Yes, we will, but not quite yet”, because a substantial quantity of EU regulation which business wants to maintain would have to continue to be subject to some sort of EU supervision. In the short term, the vast majority of EU regulation will be transposed into UK law without amendment. The third was to withdraw from the jurisdiction of the European Court of Justice. Again, it seems that the Government are saying “Yes, but not yet”, because on the first two issues the European Court of Justice has to remain in place.

The fourth, which relates to our report, was to make significant cost savings by not having to contribute to the EU budget. This, too, is becoming a mirage. Brexit will not throw up vast sums which can be put into the NHS, as was suggested during the campaign. On the contrary, if the Government are to honour their promises to the main UK recipients of EU funds—farmers, universities and local authorities—and if, as both the Prime Minister and the Chancellor have already recognised, we are to honour our budgetary obligations triggered by Brexit, in the short and medium term there will be a not insignificant cost.

Our report spells out the range of the UK’s potential financial obligations on withdrawal, if we are at the same time to establish a constructive economic and political arrangement with the EU going forward. The range is enormous, as we know. However, our report says, based on the legal evidence we received from two assertive but also two more ambivalent lawyers, that the UK would not be legally liable for any obligations if we withdrew unconditionally. However, we say in the report that the political and economic consequences of such action would be profound.

These consequences need to be spelled out quite clearly. If the UK refuses point blank to honour any of these obligations based on a legal technicality, two developments are inevitable. First, negotiations would break down almost before they had started and a cliff-edge hard Brexit would be triggered, with a so far incalculable—according to Mr Davis—impact on the economy. The second is that the honour and integrity of the UK would be at risk because, despite what the lawyers told us, you can bet your bottom dollar that the EU would find mountains of lawyers to take Britain to court and argue that there was a legal obligation—good for the lawyers, but not for the rest of us. Our global creditworthiness might be affected. Fortunately, the Government—although not some of the more fervent Brexiteers—show no inclination to go down that route, and our observation will, we hope, remain of only academic interest to lawyers, not to business people such as me.

The real value of the report lies in its spelling out of the huge range of financial obligations which the UK’s exit might trigger following withdrawal. At the highest level, we have heard about £60 billion, which in my view is far-fetched, as is the zero level. A deal will be done between those two levels. Based on the information that the committee received, my opinion is that the UK’s share of the MFF commitment between March 2019 and December 2020, which happens to be the end of the present MFF 2014-20 commitment, should be honoured. We have different figures, but mine is €12.5 billion. In addition, the Government have promised to match the funds for UK farmers and beneficiaries of EU structural funds for the year to March 2020, which is another €3.5 billion. I am not convinced that there is a pension liability.

UK liabilities under the present MFF which extend beyond 2020 are much more questionable, and very substantial, as we have heard. Much of this commitment is fanciful. Poland, for example, is yet to spend any of its 2014-20 award, and there is some money hanging around that was agreed as far back as 2007 and has not been committed.

Finally, I very much hope that the Government’s approach to these historic negotiations is strategic and not, as in the past, game-playing between the 28 participants. While an all-night, last-minute horse trade might be okay when handing out fish quotas and subsidies to farmers, such an approach would be highly irresponsible in these historic discussions, where so much is at stake for both sides.