It's in the EU's interests to make Brexit as difficult and expensive as possible – this is how they'll do it

To get the talks off to a reasonable start, Theresa May is going to have to bite the bullet and accept that the UK will pay up. And she has failed to prepare the ground for what is bound to be dubbed a 'ransom demand' by Conservative MPs and the pro-Brexit press

Andrew Grice
Wednesday 22 February 2017 16:30 GMT
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End of the road: this divorce isn't going to be pretty – or cheap
End of the road: this divorce isn't going to be pretty – or cheap

“Our biggest enemy is time,” says one minister who will be involved in the Brexit negotiations that begin next month. An inconvenient truth is emerging among Whitehall officials: despite hubristic talk by hardline Brexiteers, the EU, rather than the UK, will hold the whip hand once Article 50 is invoked.

The two years of exit talks specified by EU treaties will last more like 18 months, so that any deal can be ratified by the European and national parliaments. So it is in the EU27’s interests to let the negotiations run up to the deadline and tell Theresa May: “The clock is ticking.”

Brussels officials insist that Michel Barnier, the EU’s chief negotiator, has no intention of “punishing” Britain. But he will use the clock to seek an early deal on a highly sensitive issue – the UK’s exit fee or divorce settlement, which he calculates at about £50bn.

This has received little attention in the UK but will certainly hit the headlines soon. It could easily wreck the negotiations and leave Britain with no deal on future trading relations with the EU, instead relying on World Trade Organisation (WTO) tariffs that could cost UK business £6bn a year.

Failure to settle the divorce bill could mean that talks on a UK-EU trade deal, which May wants to run in parallel to the exit agreement, do not even begin. Nor will the EU27 allow negotiations on a transitional deal – to prevent a damaging “cliff edge” for business when the UK leaves in 2019 – until the money issue has been sorted.

To get the talks off to a reasonable start, May is going to have to bite the bullet and accept that the UK will pay up. Not the full £50bn estimated by the European Commission – inevitably, that’s an opening bid, and a try-on. But the payment will have to be “very hefty”, as Jean-Claude Juncker, the Commission President, argued on Tuesday.

Why should the UK pay anything to leave? Brussels is convinced that Britain is legally liable for budget commitments on investment projects running to 2013 and pension payments for all EU officials, not just Brits employed by the EU. Commission officials believe that Britain will pay up in order to preserve access to its biggest export market.

The Prime Minister has failed to prepare the ground for what is bound to be dubbed a “ransom demand” by Conservative MPs and the pro-Brexit press. We can’t blame her while she was trying to reassure Tory hardliners that, as a Remainer, she really would deliver last year’s referendum instruction. Nor would it have been clever to talk about the divorce bill before Thursday’s parliamentary by-elections in Copeland, where the Tories have a chance of capturing a Labour seat, and Stoke-on-Trent Central, where they might just push Ukip into third place.

The Government’s white paper on Brexit failed to mention the inevitable exit fee. May has said that the UK will no longer make "vast contributions" to the EU budget but left open the prospect of some payments for appropriate programmes.

That left her a little wriggle room but there was no hint of the scale of the likely contribution facing UK taxpayers. The storm ahead will be even stronger given that many voters will be expecting a Brexit bonus thanks to the Leave camp's fantasy promise of an extra £350m a week for the NHS once we left the EU.

May needs to start dampening such mad expectations. At some point she will have to stand up to the hardline Brexiteers and even her cheerleaders in the press. Perhaps she will feel able to once she has triggered Article 50 and we are unmistakably on course for Brexit.

The looming row over money could get very ugly. Voters won't understand much of the complex Brexit negotiations but they will understand screaming headlines about "our money" being sent to Brussels even after we have left the club.

Yes, it will be a hard sell for May. But it will be a necessary one for the greater good of our long-term economic strength.

She will find it hard to "divide and rule" the EU27 on this issue because they have an obvious interest in squeezing as much as possible out of Britain. The less the UK pays, the more the net contributors will chip in and the less the net beneficiaries will get out. They will already have to find £6bn to £8bn between them when Britain no longer pays its annual membership fee.

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So the stakes will be very high on both sides. In theory, the money row could be settled in the international courts; there will be lots of legal arguments about the UK's liabilities under the EU rulebook. In practice, it will probably be solved by political horse-trading between May and the 27 EU leaders.

An initial skirmish will be hard to avoid. But hopefully cooler heads will then prevail. May could describe the divorce settlement as part of the "implementation costs" of Brexit and tell taxpayers their bill for access to EU markets will still be coming down. A generous offer from the UK would give the negotiations real momentum and persuade the EU to begin trade talks, vital for British business.

May will be under enormous pressure from the Brexit brigade to emulate Margaret Thatcher, who famously declared "I want my money back" before winning Britain's generous rebate on its budget contributions. May should remember that many of the Europhobes egging her on would prefer the UK to crash out of the EU without a deal and rely on WTO rules, even though the prospect deeply worries businesses.

The Prime Minister also needs to recall that Thatcher had the weapon of time on her side when she made her demand, as she had a veto over major EU decisions. May has no such veto now that we are leaving – and today time is definitely on the side of the EU27.

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