This week, David Davis warned European Union leaders not to put “politics above prosperity” and urged them to soften their Brexit stance. Donald Tusk said in response that he appreciated Davis’s “English sense of humour.”
It was a good line—and the joke landed because Britain is so obviously the more chaotic of the two negotiating partners. Months on from the triggering of Article 50, the British government—and the Tory Party at large—is unable to agree on the most fundamental Brexit questions confronting it. These concern the Irish border, EU citizens’ rights and the Brexit “divorce bill,” which I want to focus on here.
The issue is this. The European Union believes that in light of its exit, Britain owes a substantial fee because of commitments made while it was a member state, on things like the pensions of Britons working in European institutions. Also factored in are road, rail and other investment projects which the UK agreed to contribute towards but which won't be finished until after exit, and the administrative cost of the withdrawal process itself.
Initially, the UK refused to recognise any of this. After some huffing and puffing, it eventually conceded that it would pay €20bn—and was laughed out of the room. Yesterday, Tusk confirmed that the Union “needs to see much more progress on this issue.” They want more money.
If Britain fails to pay up, the consequences could be severe. The EU would likely decide that “sufficient progress” had not been made in negotiations so far, and refuse to move to trade discussions with Britain at its December summit. This would be a blow for the UK, which sends almost half its exports to the EU market and seven months after A50 was triggered is desperate to get things moving.
Theresa May has reportedly signalled in private that she could up the offer to €40bn. But would this be enough? The EU is rumoured to be holding out for tens of billions more than that. And if May does look to hand over more cash, will her MPs stand for it?
The PM is in a precarious position to say the least. With a wafer thin majority, half her MPs are urging a tougher line with the EU and other, more pragmatic half are urging concessions to unlock talks. Discussion with senior figures in the party confirmed the extent of the split, and the challenge May faces in finding a way forward.
For Michael Heseltine, former Deputy Prime Minister and prominent Remainer, Britain will have to increase the sum—whether it wants to or not.
“The Europeans will determine the price of Brexit,” he told me recently. This is because “They hold the cards.” As negotiations rumble on, that “is becoming increasingly clear.”
“The Europeans will determine the price of Brexit"—Michael HeseltineBob Neill, MP for Bromley and Chislehurst and Chair of the Justice Committee, was slightly more cautious in his phrasing—and stressed that “we should be looking to come to a settlement that secures the best value for money for the British taxpayer.” But he also emphasised the need for “pragmatism” when settling the sum.
“If paying in a relatively small amount moves along the prospect of a proper free trade agreement and allows access for our financial services post-Brexit, then that’s certainly a price worth paying.”
This stands in contrast with a very different strain of thinking in the Tory Party. According to some Conservative MPs, Britain is being taken for a ride. We should push back, and if the EU gives no ground, who needs them?
John Redwood, long-time Brexit campaigner, is among them. In a radical departure from the government line, he told me over email: “The UK does not owe the rest of the EU any money over and above the regular contributions we make up to the date of leaving.”
I pressed him on his reasoning: “The EU did not give us any money for past liabilities when we joined, so we do not owe them any money for future liabilities when we leave.”
Bernard Jenkin is another prominent Conservative Leaver. While open to a financial settlement in principle, he told me that unless the EU offers a “mutually beneficial deal,” then “we don’t legally owe a penny.” If there is no free trade agreement, “We shouldn’t pay anything.”
The current agreed sequencing of Brexit talks renders such an approach impossible: Britain has to settle its obligations first, then trade talks can start. There is no option of assessing the merits of a deal before paying the cash. But according to Jenkin this is unacceptable.
“The idea we should commit to pay before they even start talking is of course absolutely ridiculous. Article 50 says they should be discussing the future framework of our relationship and their refusal to do so puts them in breach of their own treaty.”
Redwood and Jenkin are in good company. High-profile Leaver Owen Paterson recently suggested that the UK not only doesn’t owe any money—it could actually demand its own settlement from the European Union. This hardline wing of the Tory party is powerful—extending all the way into the Cabinet. Its influence should not be underestimated. May is desperate to keep any and all factions on side. She must pay more—and yet she cannot.
So what is likely to happen? John Springford, Director of Research at the Centre for European Reform, said: “I expect the UK will end up paying around €40-50 billion in order to secure a transition, which will take the form of EU membership without any votes in the EU’s institutions. But I would not bet my house on it.” In the event that Britain does not stump up the cash, it could crash out of talks altogether, with all the associated economic chaos.
Unfortunately for May, Europe doesn’t look like budging. Former Vice President of the European Commission Joaquin Almunia confirmed the worst when I asked him for his thoughts. “Brexit has a price,” he said. “If anyone leaves the club, [they are] obliged to pay for the commitments adopted in [their] presence.”
His final comment summed up the problem. “If the European Council does not consider in December that ‘sufficient progress’ exists in the negotiations,” then Britain will be taking “a very big risk.”
And remember: this is just one of dozens of similar challenges facing the government. And the Article 50 timer is ticking away.
Update: it looks like a decision on the divorce bill could come on Monday
