ICAEW has published a report on the likely cost of the UK’s departure from the EU.
The wide-ranging speculation around the potential exit charge has escalated in recent weeks. The debate has been characterized by heat and emotion and, given the complex financial relationship between the UK and the EU, it may be difficult to understand how negotiations in this area are likely to play out. As chartered accountants, we are able to provide an objective view of the numbers which I hope will offer some insight into what the net amount could look like.
Using the EU’s 2015 accounts, we have reviewed the main components of a potential bill that could be due in March 2019 which we can broadly break down into three parts:
1. Settling of accounts which would include realisation of the UK’s investment in the European Investment Bank and its share of the European Union’s balance sheet2. Authorised spending by the EU not yet incurred. This would include multi-year programmes such as, for example, research grants to universities3. Committed spending for programmes that are included within the current EU financial framework for 2014-2020. Much of this goes towards development funding for newer EU members particularly those in Eastern Europe
It is this third component that is likely to be the most contentious as the negotiation will be around to what extent the UK is obliged to fund programmes that may not be underway or completed when it leaves in March 2019.
Looking at these different components, and taking into account the rebate and EU spending in the UK, our analysis shows that the exit charge is likely to be much lower than current extreme predictions
Currently the UK’s share of the EU budget each year is around £20-£21bn, before an estimated rebate of £5-£6bn and spending coming back to the UK of £6-£7bn. We don’t see any reason why the rebate should not be paid back to the UK – though the EU could attempt to withhold this as there is no agreement on wider exit charges.
Our report presents three potential exit charge scenarios ranging from £5bn to £30bn, with the central scenario costed at £15bn. This is equivalent to £225 per person expected to be living in the UK in 2019, or approximately the amount the UK public sector spends in one week.
Ultimately the amount the UK will pay on or after its departure will be a matter of negotiation. Pensions, future development programmes and the continuation of EU spending in the UK from April 2019 onwards will be some of the key elements of the deal to be discussed.
However we would like to see both sides agree on the bill sooner rather than later, so that attention can be focused on more important aspects of the negotiations. Although the exit charge is the subject of much discussion at the moment, we must remember that the trading relationship between the UK and the EU will have a much more significant impact on the UK economy in the long run. It is crucial that we develop a strong trading relationship with the EU if we are to improve UK business confidence and build a world of strong economies.
A succinct summary of the position. Expressed in €'s the upper end is not far from the lower end of what has been mooted around European capitals. It is nice to see that at last someone has started to crunch some real numbers!
Whilst it will in the end be politicians that decide we need much more input from independent bodies like the ICAEW to move the narrative away from the political rhetoric to a more realistic discussion. The Conservatives are in danger of painting themselves into a corner that makes any settlement impossible, just as it is over the subject of Immigration.
Perhaps the Institute could help here as well with some maths on the reality of achieving the stated goals of reducing immigration to 10's of thousands.