Only "cliff-edge" Brexit would prevent UK financial payment, Lords report

The UK is not legally obliged to go on contributing to the European Union budget following Brexit, but this could only be achieved by a damaging "cliff-edge" scenario if no withdrawal agreement is reached, according to a House of Lords committee.

In a report published today, the EU Financial Affairs Subcommittee recognises the politically sensitive and important role that contributions to the EU budget will play in the forthcoming withdrawal negotiations.

As the UK provides approximately 12% of the EU’s budget, and is a significant net contributor, the issue will be crucial for both parties. The UK Government has stated that it is open to making payments towards specific programmes in order to cement a cooperative future relationship with the EU, but there are already demands from the EU for much wider contributions.

There are strong advantages, the peers believe, to negotiating an orderly exit in the form of a withdrawal agreement as envisaged under article 50 of the Treaty of Lisbon. This would mean that the apportionment of existing commitments and, potentially, the EU's assets, would be a matter for political negotiation. Any such division would be enormously complex and there are disagreements over how any final "bill" could be determined.

A demand of €60bn is being currently attributed to the Commission, but the report finds it possible to arrive at a wide range of figures.

"However, it should be noted that the strictly legal position of the UK on this issue appears to be strong", the committee states. "Article 50 also provides for a 'guillotine' after two years if a withdrawal agreement is not reached. Although there are competing interpretations, legal evidence suggests that if agreement is not reached, all EU law will cease to apply, and the UK would not have an obligation to make any financial contribution at all – although this would only apply in a 'disorderly' or 'cliff-edge' Brexit."

It adds: "This possibility must be set against the immense damage to UK-EU relations that a disorderly withdrawal would inevitably cause. If the Government wishes to include future market access on favourable terms as part of the discussions on the withdrawal agreement, it is likely to prove impossible to do so without also reaching agreement on the issue of the budget."

Committee chair Baroness Falkner of Margravine commented: "The forthcoming negotiations will be more than just a trial of strength. They will be about establishing a stable, cooperative and amicable relationship between the UK and the EU. This will not be possible without goodwill on both sides."

Click here to access the report.

• A separate report by the Lords' EU Home Affairs Subcommittee concludes that offering preferential treatment to EU nationals compared to non-EU nationals in the UK's future immigration regime could increase the likelihood of securing reciprocal preferential treatment for UK nationals in the EU and improve the prospects of achieving the UK's objectives on access to the single market. The Government should therefore not close off policy options on future regulation of EU immigration ahead of Brexit negotiations. Click here to access the report.