Brexit and the EU Budget (EUC Report)

Lord Young of Cookham Excerpts

Thursday 6th April 2017 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, when the noble Lord, Lord Tunnicliffe, returns to the pub and resumes the dialogue with his drinking friend, I hope that he will share with him his deep insight into the mechanics of the EU budget. I am sure that he will be fascinated to learn even more about it.

I thank all those who have taken part in this debate, particularly the noble Baroness, Lady Falkner of Margravine, who not only chaired the committee but also introduced this debate. I particularly welcomed her peroration with its plea for fair play and an amicable settlement—an emotion that was shared by nearly everybody who spoke in the debate. I particularly recall the interventions of the noble Lord, Lord Butler, and my noble friend Lord Lindsay in that respect. Having listened to the noble Lord, Lord Thomas of Gresford, I came to the conclusion that if only those on this side of the negotiating table and those on the European side of it were all members of the Reform Club, our withdrawal could be settled quite quickly after a decanter or two of very good port.

This committee, together with the others under the umbrella of the EU Committee, continues to inform and influence the Government’s approach to the EU negotiations and I welcome the significant contribution this report has made in that respect. I reread earlier this week one of the first reports on this subject, The Process of Withdrawing from the European Union, which came out nearly a year ago, when withdrawal seemed unlikely. Like today’s report, for those of us for whom the EU is not our special subject, it was clear, concise, eminently readable and cogently argued. I was struck by how perceptive that original report was, particularly on the key role of the European Parliament in consenting to any agreement, and on the process of disentangling the UK from EU law, where the report quoted the chilling comment of Sir David Edward, a former judge of the Court of Justice of the EU who said:

“The long-term ghastliness of the legal complications is almost unimaginable”.


On the report, I certainly take on board the advice from the noble Lord, Lord Hannay, who said that sweeping assertions should be avoided. Throughout this report on the EU budget, the committee has successfully identified the legal and technical issues, as set out by the negotiation guidelines recently published by the European Council and the European Parliament. I can confirm, in response to the question posed by the noble Lord, Lord Tunnicliffe, that the headings identified in the report as liabilities are the liabilities identified in the EU’s annual accounts. The Government will publish their formal response to this report in the usual timeframe. But I say from the outset that this is a significant contribution to the EU budget discussion in which, so far, much heat but little light has been generated. We have had a very high-quality debate inspired by this report.

As the Prime Minister made very clear in her Statement to the Commons last week, we will begin our negotiations with the European Union with the ambition to be not just a truly global Britain but the best friend and neighbour to our European partners. We have set ourselves a clear and ambitious plan for the negotiations ahead. During these, we will seek to achieve the best outcome, not just for the UK but for our European partners as well.

The Article 50 letter that was delivered last week by our UK representative in Brussels to Donald Tusk, President of the European Council, formally set out what we are proposing to our European partners on the forthcoming negotiations. The Council has responded with draft guidelines which say, on the subject we debate today:

“A single financial settlement should ensure that the Union and the United Kingdom both respect the obligations undertaken before the date of withdrawal. The settlement should cover all legal and budgetary commitments as well as liabilities, including contingent liabilities”.


Therefore, the response to another question from the noble Lord, Lord Tunnicliffe, is yes: both the European Union and the European Parliament are looking for a single financial settlement.

The UK Government will now seek a deep and special partnership that covers both security and economic co-operation with a bold and ambitious free trade agreement, greater in scope than any such agreement before. We should begin these negotiations constructively, in a spirit of sincere co-operation, as indeed has been advocated in today’s debate, and we are confident that, at the end of the day, Britain can secure a deal that works both for us and for the EU. I agree with what a number of noble Lords have said—the noble Lord, Lord Butler, for one—that we want an agreement, but so does the EU.

Before I get into the legal arguments about whether we owe the EU a so-called exit bill, I will briefly set out the Government’s ambition in this area. As the Prime Minister made clear in her Lancaster House speech on 17 January, having been a net contributor to the European budget since we joined the Common Market in 1973,

“the days of Britain making vast contributions to the European Union every year will end”.

While we remain a member of the EU, the UK will continue to play a full part in EU business, including EU budget negotiations—a matter the noble Lord, Lord Thomas, referred to—and meeting our contributions. We will remain committed to budgetary restraint and ensuring that we live within the current deal on the multiannual financial framework. However, what is important is that, once we have left the EU, control over how our money is spent will reside with the UK Government and Parliament.

Throughout the negotiations on withdrawal, we have to look at the rights and obligations we have as a departing member state, in accordance with the law but also in the spirit of continued partnership with the EU. As the report makes clear, a whole range of issues for the UK and the EU will need to be addressed as we leave the Union. The House will not be surprised, against a background of earlier debates on this subject, if I say little about the Government’s negotiating strategy, not least because the formal negotiations have not started yet. In any case, that was the advice I was given by the noble Lord, Lord Hannay, when he spoke a few moments ago. The guidelines are still being agreed and the debate over UK payments according to the rights and obligations of our membership is just speculation at this stage—speculation that has prompted a range of figures from the other side of the channel, which some noble Lords have referred to in this debate.

As the Prime Minister has said, the UK is a country that meets its international obligations. It is in the interests of both the UK and the European Union to agree a new partnership in a fair and orderly manner, with as little disruption as possible. There is indeed no reason why a new deep and special partnership between the UK and the EU should not be achievable.

On the specific issues raised in the report and in the debate, throughout the report there are a range of different opinions about the legal interpretation of potential obligations which the UK may or may not be legally required to pay. Witnesses to the committee are a testament to the complexity of it, and disagreement and uncertainty over the liabilities of a member state under Article 50 are to be expected in an area that has of course little precedent. The legal nuance is interesting. The report concluded that the wording provided under Article 50—in particular,

“The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification”—


was sufficient to clear the UK of any ongoing obligations. My noble friend Lord De Mauley said that this was a useful incentive for the EU to seek agreement, and my noble friend Lord Taylor of Warwick made the case for that side of the argument more forcefully.

Other legal experts argued that Article 50 does not expressly deal with the question of financial consequences as a member state withdraws from the Union. The noble Lord, Lord Davies of Stamford, developed that case, as did the noble Lord, Lord Thomas of Gresford. The noble Lord, Lord Haskins, made the point that, whatever lawyers on one side for the argument might say, lawyers to support the other side of the argument can fairly easily be recruited. They argued the other side of the argument, that rights and obligations upon the termination of a treaty are governed by Article 70 of the Vienna Convention on the Law of Treaties. This states that obligations undertaken when the UK was still bound by the EU treaties would not disappear at the moment of Brexit.

We are far from exhausting the range of opinions that can, and will, be given on this matter over the next few years. Superimposed on the legal uncertainty over what is or is not a survivable obligation on the UK, there is the additional ambiguity over the size of each obligation and how to calculate the UK’s share—a point the noble Lord, Lord Jay, made in his contribution. As the report makes clear,

“if it were to be accepted that the UK had any financial liability on leaving the EU, no single figure can incontrovertibly represent an amount that the UK might be requested to pay”.

Again, for each potential obligation, witnesses before the committee highlighted various ways in which you could calculate its size and various ways in which you could calculate the UK share. At least four different percentages were given with respect to pensions alone. Reading all this as a lay man—indeed, it has been confirmed by this debate—my conclusion was that a solution will be arrived at not by lawyers but by politicians.

A number of noble Lords mentioned the question of the MFF and what would happen when, without UK funding, the EU 27 would face an immediate decision on how to manage the shortfall in the remaining years of the MFF once we have left. Again, the noble Lords, Lord Jay and Lord Butler, raised this issue. Member states will face a difficult choice between increasing contributions or cutting payments. Increasing contributions will be unpopular with member states that are net contributors, but of course cutting payments will be equally painful for those who rely on receipts. The noble Lord, Lord Butler, referred to a comment from the German Deputy Finance Minister, Jens Spahn, who has already said:

“We shouldn’t be talking about more money for the EU budget, but how to make better use of our resources”.


The noble Lord, Lord Thomas of Gresford, asked whether beneficiaries of the UK would continue to receive EU funds. I am sure he is aware of the commitment, given by the Chancellor, that the Government will guarantee funding for projects signed before exit, even if they continue after we leave.

My noble friend Lord De Mauley asked whether it was realistic to try to expect an agreement in two years. We start from the advantage of close regulatory alignment with the institutions of the EU, with an understanding and indeed a trust in each other’s institutions, and with a spirit of co-operation which stretches back some decades. We hope that those attributes will be useful in trying to reach an agreement within that time span.

The noble Lord, Lord Davies of Stamford, asked whether the CJEU jurisdiction would still apply post exit. The UK is leaving the EU, and we have been clear that that means bringing to an end the direct jurisdiction of the CJEU in the UK.

On the question of the European Investment Bank, raised by the noble Lords, Lord Shutt and Lord Butler, we remain a full member of the EIB. The EIB has signed and approved new projects in the UK since the referendum, including £60 million for the purchase of new trains, which will improve passenger services in East Anglia, and £800 million for the upgrade of the national grid’s gas network. However, as with other items on the table, as part of the UK’s withdrawal from the EU the UK’s long-term relationship with the EIB will need to be resolved, and we are currently evaluating a full spectrum of options for the nature of that long-term relationship.

During our debate, there was a discussion on the size of the RAL and the liability relating to pensions. The noble Lord, Lord Butler, with agreement from other noble Lords, said that the liability rested with the EU. My noble friend Lord Lindsay said that that may be the case but that we have a moral obligation to make sure that it is happily resolved. Again, I say to your Lordships that we are approaching discussions on all these issues constructively and respectfully, and we are confident that we can achieve an outcome that works in the interests of both sides.

The noble Lord, Lord Butler, asked, I think, whether nothing is agreed until everything is agreed. I have in front of me the communication from the Council of the European Union. Paragraph 2 says:

“Negotiations under Article 50 TEU will be conducted as a single package. In accordance with the principle that nothing is agreed until everything is agreed, individual items cannot be settled separately”.


That was in the communiqué from Brussels that came out on 31 March, and I hope that that answers his question.

My noble friend Lord Lindsay asked a rather binary question: are we talking about a divorce or cancelling club membership? The honest answer is that we see this process as the UK leaving the European Union. We want to negotiate this withdrawal in good faith and with the ambition of being the best friend and neighbour to our European partners.

To sum up, this is a complicated topic whose complexity the committee has done very well to bring out. Equally important is its reflection—less well reported—on the importance of the spirit of the negotiations as much as the legal issues. That has been one of the themes running through this whole debate: we have to get the tone and the spirit of those discussions right. Therefore, I very much agree with the report’s conclusion, which is worth repeating here in full:

“It is also a negotiation about establishing a stable, cooperative and amicable relationship between the UK and the EU, so as to promote the security, safety and well-being of all the peoples of Europe”.


We want to play our part in making sure that Europe remains strong and prosperous and able to lead in the world, projecting its values and defending itself from security threats. We want a deep and special partnership, taking in both economic and security co-operation.

This report is a welcome and comprehensive contribution to this debate, as indeed our discussion has been today. It has highlighted critical uncertainties over the legal position with respect to survivable obligations and the approach to exactly what this means for UK finances. Our approach to the budget negotiations is ambitious but grounded in the principle of achieving the best outcome, not just for the UK but for our European partners as a whole.

I hope that the tone of this debate, in which different views have been expressed by Members of different parties and none, is matched by the tone of the negotiations, which are to start shortly.