Article 50 Triggering Day
Question: How much money will the EU have to payback to the UK after Brexit? An Explanation for Politicians
Answer: Nothing. Zero. Zip. Unless…
Mobile Phone Contracts
When you have a mobile phone contract, say for 24 months, at £25 a month and you leave it early, say after 12 months, you are expected to pay the remaining 12 months or an early termination fee, if your contract has one of those (the majority don’t, but the termination fee is about the price of the remaining portion of the contract — basically, there is no practical difference). The total value of the contract, your commitment, over the two years is £600. Leaving in 12 months means you’ve paid one year’s worth, which is 12 months and you have to pay the remaining portion of the contract. i.e. 12 months worth, which is another £300.
This is the bill Juncker is presenting to the UK. It is the remaining commitments that the UK made to the EU. It isn’t a punishment bill. Indeed, if they wanted to claim the full value, and wanted to make it a punishment bill, they would be entitled to more than double that.
Why do I say this? You have to understand how the EU “contract” works and crucially, how it’s funded.
The EU use 7 year budget cycles formed from 3 portions.
- The membership fee
- 80% of all import tariffs into the EU from outside it (the remaining 20% goes to the member state as a referral fee for the “introduction”)
- 0.3% of the VAT charged via a member state (for every £100, we pay 6 pence).
This is to confer the work the EU do on our behalf in managing imports, negotiating trade, making regulations etc. Note, this is on our behalf, which means we don’t have to do it, not a challenge to sovereignty. It’s like outsourcing or delegating operations, rightly or wrongly.
Front Loaded Costs
The EU will have spent money from the last budget cycle in this one. Like a mobile phone company pays for your phone up front, sends it to you for free, and charges a proportion of it within the monthly charge (often 50:50). So in our example, it may be that £12.50 a month of the £25 charged is actually to pay for the phone.
The EU has done the same. They’ve spent money from the last budget cycle on development projects, including the ERDF (European Regional Development Fund) which has regenerated vast swathes of the OK, including a £60 million per year dependency in Cornwall and some very large parts of Birmingham, Manchester, Leeds, Sheffield and rural areas, albeit spread out. Like the phone after 12 months, the company can’t do anything nor reclaim the remaining value of the phone by selling it.
Like the phone operator, this means that the EU need to be somehow reclaim the money they spent on the UK as well as the costs of budgetary responsibility in this cycle and arguably, if they want to be harsh, lost income (but they’re not).
The last budget cycle covers the period of 2014–2020 inclusive. Our membership fee, net of rebates is around £11.8 bn (the rebate is paid as an offset against current funds — i.e. the rebate money doesn’t leave the UK in the first place and won’t even need to be reviewed for 7 years — it’s not even allocated to the EU at UK level either). Hence our total balance sheet commitment is 7 x £11.8bn = £82.6bn.
We are 2 full years in. So have paid 2x £11.8bn. The remaining costs are thus 5 years of £11.8bn which is £59 billion.
This excludes the loss of trade, loss of future incomes etc. this IMO, having crunched the numbers is an exceptionally fair deal. It is exactly the same as terminating a phone contract. You finish early, you pay you commitments, you go. It is not a punishment.
Jurisdiction and Bad Debt
This seems to me like pretty much the least understood part of the process by David Davis and most, if not all Leavers. They imply that if we leave the EU, and don’t pay the debt, then the EU can’t chase us, because there is not legal framework in which to do so…
The logic is simple:
- If we fail to reach a deal in 2 years and negotiations are not extended, then we trade under WTO rules. This is understood by everyone.
- The WTO have dispute resolution procedures, including sanctions, which they can and will place on countries that fail to address the dispute. They already apply them to Iran and many other countries.
- All EU countries are members of the WTO, the EU is a member of the WTO and so are we. Membership of the EU is a subset of the WTO rules.
- So we are subject to the same dispute procedures as any other country. 27 members of the 168 members immediately engage their 100 trade partners and you suddenly have a majority of 127 countries to vote on the UK receiving sanctions, if we didn’t resolve it after the first 2 stages. We’d be done for in a heart beat. We couldn’t trade with anyone, including the USA.
The UK’s position in this is not strong at all. It appears that the UK government are simply planning to run the clock down of their contributions over 5 years, given the release of a 2022 idealised timeline. That way, they’d pay another EU budgetary contribution, and then aim to get the rebate for the period of 2014–2020.
However, as it stands, the UK is not entitled to any cash back. May et al are going into the negotiations having presented to the public the idea they can get back £6 billion or something. If they want to play the “counterclaim” game then I suspect they’ll resort to fraud, but in the worst case, it still leaves a court of arbitration to conclude that the UK will still have to pay £53 billion even if we win that portion of the argument. Dead in the water.