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Why the UK is at a disadvantage on the Brexit bill

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Why the UK is at a disadvantage on the Brexit bill

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Why the UK is at a disadvantage on the Brexit bill

There is an old joke about two people shouting at each other from opposing balconies on some narrow street. They will never agree, the punchline goes, because they are arguing from separate premises.

The same could be said about the differences in approach to the financial element of the Brexit negotiations. The UK is adopting a legalistic stance, with constant assertions that no more will be paid than is legally owed. An earlier post on this blog set out what was said at that infamous dinner at Downing Street, where (according to Frankfurter Allgemeine Zeitung):

“The subject of money came up in conversation. The EU estimates costs of 60-65 billion Euros for London. May argued that her country didn’t owe the European Union one penny; after all, there’s nothing in the treaty about a final tally due in the event of an exit.”

And this is still the mindset of many Brexit-supporting politicians. This week Jacob Rees-Mogg is quoted as saying “legally, we owe nothing”.

This perspective rests on a misconception. If the issue was about legal liability there would be no need for an agreement, as the EU (or the UK) could just go and enforce their debts like any other creditor. There would be nothing to discuss. The figures would speak for themselves.

The purpose of the Brexit financial settlement is not to discharge the UK’s legal liabilities in a strict sense but to deal with the overall effect of its departure. Article 50 expressly states that the EU “conclude an agreement with [the departing state], setting out the arrangements for its withdrawal”. Arrangements, not liabilities.

The ultimate objective of the EU in the Brexit negotiations, which its team has been open about since last summer, is that Brexit must be “orderly” and not “disorderly”. And any departure that has an adverse financial impact on the remaining EU27 and the bloc’s institutions will be disorderly, whether or not there happen to be legally recognised and enforceable liabilities.

This is why the UK’s stress on legalities is misconceived. The EU is less interested in debts and more interested in responsibilities. So a responsible departing member state should make sure that its exit is as smooth as possible — and not slam the door on the way out yelling that it will see those remaining in court.

The most important document on the financial side of Brexit is the “position paper” of 12 June 2017. This should be read carefully. The annexes are especially important — here the EU has set out the heads of what will be affected by departure. There are no figures. There is, however, reference to methodologies and principles. The EU is saying, in essence, agree what needs to be covered and they will be covered, and whatever figure comes out at the end, will be the amount to pay.

This way of working out an overall settlement amount has its attractions, and looks reasonable and fair. But it seems to horrify the UK. As the FT reports elsewhere:

“The point is a reminder of the EU’s demand that the two sides devise a methodology for working out the UK’s obligations, rather than discussing total sums. The UK has resisted that approach, fearing that agreeing to the wrong methodology might leave the UK exposed to an unexpectedly vast bill.”

The scene is not difficult to imagine: ministers sitting there and staring, paralysed in terror of making a judgment call. One can understand why saying “no legal liability” ever more loudly seems a better option.

Part of the UK’s problem is that it has done very little of its own work on the financial side of Brexit. Whether this was because of complacency (“no legal liabilities say our lawyers!”) or of lack of capacity, the EU has been able set the terms of this element of the process. And this is not this blog making an assumption: here is a revealing exchange when David Davis, Brexit secretary, gave evidence to a parliamentary select committee last month:

“Lord Woolmer of Leeds: The Commission has published several position papers, working papers and so on. In that regard, the Government have published very little. For example, there is the Commission’s paper on the essential principles on financial settlement. Why have the Government not published anything along those lines?

“Mr David Davis: The one you mention, financial settlement, is the Commission’s ask. As the Chairman will recognise from past experience, we are now going through that line by line, almost word by word, to see exactly how much we think it stands up. Remember what we have said: we have said that we will meet our international responsibilities and
expect others to meet their responsibilities to us. Those are two sides. That does not mean we are going to accept verbatim what they make as their first claim; we will go through it piece by piece. [...] At the end, we may well publish an alternative proposal, but at the moment the proper approach, to get the right outcome in the negotiation, is to challenge what it is doing.”

In short: the UK is being reactive to the terms of the financial settlement being offered by EU, rather than seeking to formulate and then advance its own positive case. No wonder some at the EU think “Brexit chaos” is a cunning negotiating ploy.

Why can the UK not just insist on its legalistic rights? The problem is that the UK lost the crucial argument on sequencing. Even though the Department for Exiting the European Union pretended otherwise, the defeat on what Mr Davis had promised would be the “row of the summer” has led directly to the UK being at a disadvantage on the financial settlement, and we are still in the first week of August. Summer, such as it is in the UK, has still not ended.

The prize that the UK seeks, of a sensible and beneficial post-Brexit trade agreement with the EU, is dependent on the Union determining if there has been “sufficient progress” in the exit negotiations, especially on financial and citizenship matters. This requirement of “sufficient progress” has been the EU’s open and firm position since April. The UK now realises the EU means it.

But Britain continues to waste time and resources. Instead of engaging with the EU on the amount required for an “orderly” Brexit (and that the EU would want a sum has been clear since November last year), the UK has pretended the problem does not exist. Indeed, it has often looked as if playing to the pro-Brexit press and backbenchers on the budget issue was more important than addressing a foreseeable issue.

None of this should be taken to mean that the UK should nod along with the EU position. But the effect of (a) the sequencing defeat and (b) the lack of any detailed counter-proposal means that Britain’s UK’s negotiating position is weak. By boasting that it will not pay anything and not preparing, the UK may well end up paying far more than it otherwise would need to do so.

There is no one model of an “orderly” Brexit. It was entirely open to the UK to show the EU that disorder on departure can be avoided at a lower settlement amount. But this would have required forethought and a strategic approach. So UK ministers are bracing themselves for a large bill and then having to defend this to the press and backbenchers. And this will not be the last such retreat.

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