UK Politics

Brexit divorce cost uncertain, say auditors

Pound coins and notes Image copyright PA
Image caption The government estimated the cost in pounds, but the bill will be paid in euros

The total cost of the Brexit "divorce" bill remains uncertain, auditors say, as much depends on future events.

The National Audit Office said the £35bn-£39bn range put forward by the government was "a reasonable estimate".

But even "relatively small changes" to things such as inflation, the exchange rate and the UK's future economic performance could push it up or down.

The government said the settlement would be "fair to UK taxpayers" and would honour commitments made.

The UK is due to leave the European Union at the end of March 2019 - but a "transitional" period is expected to last until 31 December 2020, during which most of the current trade arrangements would continue.

It has agreed to continue to pay into the EU's annual budget until December 2020, and to cover a share of outstanding commitments and liabilities at that date.

The largest liability - the pension scheme for EU officials - is likely to mean payments continuing until at least 2064, although about 60% of the financial settlement is expected to be paid by the end of 2021.

Chancellor Philip Hammond has set out what he calls a "reasonable central estimate" of the settlement's value as falling between £35bn and £39bn - although no final figure is mentioned in the joint report agreed by the UK and EU in December.

But the National Audit Office said it was not possible to define the total cost "until there is greater certainty around future events".

These include:

  • The exchange rate - the final settlement will be paid in euros and the Treasury's estimate was based on the exchange rate in place when the agreement was reached, in December 2017
  • The UK's future economic performance - how much the UK pays into the EU budget in 2019 and 2020 is calculated on its economic performance compared with that of other member states. Those contributions also partly determine how much the UK will pay towards outstanding liabilities and commitments after 2020
  • How much the UK will have to pay into the EU pension pot is also based on assumptions about life-expectancy, salary increases and valuation estimates

"Relatively small changes to some of these assumptions would cause HM Treasury's central estimate to be outside its £35bn to £39bn range," the report says.

The NAO report adds that some costs are not included in the estimate - such as a commitment to the European Development Fund, expected to cost £2.9bn, because it was not established under EU treaties.

However, the estimate does include about £7.2bn of funds to be paid out by the EU to the UK that will actually go straight to the private sector, not government accounts.

Image copyright EPA
Image caption The UK is due to leave the European Union on 29 March 2019

The report says the "vast majority" of financial commitments will be paid by 2026 and the UK will receive its share of paid-in capital in the European Investment Bank - worth £3.1bn - in 12 annual instalments from 2019.

Head of the NAO Amyas Morse said the Treasury's estimate "reflects a number of moving parts, so the range of costs in it could have been wider than £35bn to £39bn".

But he added: "Overall we think it is a reasonable estimate."

A government spokesman said: "We have always been clear that we will honour commitments made while being part of the EU, and we have negotiated a settlement that is fair to UK taxpayers and means we will not pay for any additional EU spending beyond what we signed up to as a member.

"The NAO has confirmed that our estimated figure is a reasonable calculation, and we are now discussing our future relationship."

Lib Dem Brexit spokesman Tom Brake said: "Boris Johnson's claim that the EU can 'go whistle' over a divorce bill looks, even by his standards, to be a piece of particularly bilious buffoonery.

"The NAO have confirmed the cost of divorce, whilst likely to be in the government's stated range of £35bn to £39bn, could be higher."

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