Brexit and the EU Budget (EUC Report)

Lord Shutt of Greetland Excerpts

Thursday 6th April 2017 Lords Chamber

[Lord Shutt of Greetland (LD)]

My Lords, I too pay tribute to my noble friend Lady Falkner of Margravine for her leadership and the way in which she has conducted the committee while she has served as our chairman. As she has indicated in her generous comments to me, this is my last contribution as a member of the European Union Financial Affairs Sub-Committee prior to my being rotated off for further service elsewhere. It has been thoroughly brain-taxing work but I have come to the conclusion that perhaps I will miss the weekly thick brown envelope arriving each Saturday morning. Twenty-seven days after the referendum, the sub-committee met and decided to have two inquiries, one into Brexit and financial services and the other on this subject, Brexit and the EU budget. The first one was debated on the last day before the Christmas Recess, and here we are debating this topic on the last day before the Easter Recess. I have a feeling that the business managers take the view that if there are difficult areas with lots of numbers, they should table them on the last day.

I tend to the view that these occasions are not for the members of the sub-committees to speak but for others to speak, and it is not for us to puff up the work. However, on this particular report perhaps it is right for us to speak on this occasion. Four members of the sub-committee have spoken so far and the noble Lord, Lord Haskins, is yet to come. I will try not to repeat too much of what has been said.

The first point is that the EU budget is very complicated. We have looked at the income side and tried to understand it. Three-quarters of the income is based on the gross national income of member states, along with money from customs duties, VAT rebates and corrections. The expenditure side is based on a seven-yearly financial spending plan, the multiannual financial framework, enhanced by an annual budget as amended several times during the course of the year.

One area that we have been trying to get to grips with is where on Brexit the UK’s financial responsibilities would stop, on the basis of a departure in two years’ time. How does that fit with a seven-year budget? Here we are in the seven-year period 2014-20. Certainly before our departure there will be talk of the budget for 2021-27. We have heard about the RAL, which is yet to be paid—in other words, promises. It is committed in 2014-20 but to be paid later, with some of it perhaps coming to the UK. We have even been told that it may be several years beyond 2020 before some of it is actually spent.

The noble Earl, Lord Lindsay, has spoken about pensions. We have discussed that, including the question of whether we are talking about proportions of pensions or entire pensions, and the issue of UK pensioners. We have looked at the share of assets, cash and property loans and what the percentage is that one would put to the UK. I am interested in the Reform Club analogy. I also wonder about the analogy of the building societies, where the clock stopped and the people who were members ran at that point. And what about the inherited wealth of those who started this work in the middle of the century before last? We also looked at the European Investment Bank.

It was trying to tease out what the UK’s liabilities are and seeking legal opinions that led us to what seems to be a very surprising position—or was it in fact surprising that there was this “walk away” option because a deal could not be enforced? We took legal opinion. Three lawyers came before us and then we sought our own legal advice from the legal adviser to our committee here in the House of Lords, which is printed in full. All that evidence was taken on the public record, and other distinguished lawyers who saw that could have come rushing to our committee and said, “We want to give some evidence to you because we think differently”. I do not think that happened. That is what we found, and we would have been criticised if we had said, “We will ignore all that because it doesn’t seem right”. So it is there, it is in the evidence; it had to be.

The one thing I conclude is that Brexit or any other exit was not meant to happen. That is why we are in the pickle that we are. Is it any surprise that no deal is a possibility? No, because unless Article 50 had a substantial annexe detailing how an agreement could be formulated and would be enforceable, how could it be otherwise? With due deference to my noble friend Lord Thomas, Article 50 contains no reference to lawyers or courts. That is amazing, but that is what the document says. As I said, I do not believe it was meant to happen.

Hence, perhaps, Mrs May’s position. On the one hand, she says that she wants a smooth, orderly exit from the EU, but on the other that no deal is better than a bad deal. What is a bad deal in those circumstances? I suspect that she means an expensive one. I do not know, but what other definition would there be? I conclude that no deal and walk away is the bad deal, because to walk away means that the UK could not hold its head high in the international community, nor would it be trusted to honour international agreements ever again. That seems to me a perilous journey.

So the committee is clear: we need to agree. The numbers are not clear: they need to be negotiated. We can see the circumstances in which the numbers may arise in any deal. On page 29, we indicate how we see that, by agreement, the figure could be as low as £15 billion or as high as £60 billion.

In the last brown envelope to come to my house last Saturday morning was a report by a European think tank, Bruegel. Its numbers are more precise. It has done a similar job to our committee. I do not know its methodology in reaching its numbers—perhaps it has just beavered away—but it comes up with figures between £31.7 billion and £35.1 billion, a much narrower position. It took no account of the European Investment Bank, and I believe that UK involvement in that amounts to £10 billion, so in those circumstances it would narrow down to £21.7 billion to £25.1 billion. Of course, all these numbers can change because of financial behaviour in the next two years—particularly, for the UK, whether the expenditure budget moves away from us or there are more benefits to the UK.

In conclusion, I cannot believe that there is any solution other than orderly agreement. However the sequencing should be, unless the financial settlement is sorted, I cannot see there being good will for a future beyond it. Therefore, it is very important.