Brexit and the EU Budget (EUC Report)

For more than 40 years Britain has been a part of the European family. The famous soul music hit “We Are Family” summed up the relationship. But, sadly, wedlock increasingly became seen as padlock. On 23 June last year the British people decided to adopt another tune. This could best be described by the rock supergroup Queen’s anthem “I Want to Break Free”.

Britain is leaving and we have two years in which to exit, and we have triggered Article 50. The big issue now is the terms on which we exit. I would not normally associate the TV personality Noel Edmonds with Britain’s exit from the European Union but for 11 years he presented 3,000 episodes of the popular high-tension TV game show “Deal or No Deal”. That is the situation we are now in—deal or no deal—but we do not have the luxury of 11 years and this is more important than a game show. It is about Britain’s future.

Surely the most important point is that it is in everyone’s interests that harmony be maintained. About 45% of UK exports go to the EU, while 53% of our imports are from the EU. The British-EU trade relationship will still be important post-Brexit. As the Prime Minister said in January:

“We are leaving the European Union, but we are not leaving Europe”.

It is not in the EU’s interests to punish us by forcing us to resort to the World Trade Organization’s rules. I had the privilege of being a speaker at the WTO in Geneva. I formed the impression of an organisation which, although well-meaning, is actually hindering, not helping, free trade through its punitive rules.

Article 50 is very clear. There are three elements.

First: “Any Member State may decide to withdraw from the Union”.

Secondly: “Such a member state has to notify the Council”—we have done that.

Thirdly: “The Treaty shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement”.

I submit that in its very brevity Article 50 points to the departure being a clean break. It also means that trading negotiations should not be put on hold. If we talked about exit terms for the next two years and put off all thoughts of trade deals, imagine the effect on the markets and the jobs that would be lost. Surely these terms need to be negotiated in parallel.

About a decade ago I was a guest speaker at a Nevada business forum in Las Vegas. Just before the start of the dinner the host came over and asked me to give a welcome speech on behalf of the United Kingdom. It took me by surprise since I thought I was only due to speak later. But I took the opportunity as it presented itself then, which is what we should do with these discussions. Let us not forget that 85% of the global economy lies outside Europe. There is a big world waiting for us outside Europe: the Commonwealth, China, India, and America.

The European Commission’s chief negotiator, Michel Barnier, has suggested that the UK’s exit bill could be as high as €60 billion. This has not been justified or itemised in any way. What we do know is there will be a €10 billion per year hole in the EU budget as a result of the UK exit. So one can see why Mr. Barnier is keen to find ways of making good that loss. But he needs to understand that when a house is on fire, it is too late to take out an insurance policy. There was no mention of a possible exit bill when Britain first joined the EU. Furthermore, there is no mention of an exit bill in Article 50.

It is right to take into account paragraph 135 of the report. The committee did not rely on just one legal opinion; it took a variety. In its submission, we do not owe any money at all. Of course, that needs to be debated and discussed but to ignore paragraph 135 would not be right. When one considers that part of the exit bill would cover the pension costs of retired EU officials, one can see why this could be contentious.

Having said that, it is not just about the legal obligation. There are other factors to take into account. During our 40-year membership of the EU, we have been a net payer to the EU budget, subsidising the poorer EU member countries. This is why we receive a European rebate. In 2015 the UK made the second-largest net contribution to the EU budget in absolute terms: €14 billion. When the UK makes its final contribution as a member state, we should expect the usual rebate payment. That could come to over €7 billion. So the rebate could be used to reduce any final exit bill. In our negotiations we could also call on the EU to hand back €10 billion of UK assets held by the European Investment Bank.

The Chancellor Philip Hammond has said that he does not recognise our liability for the Brexit divorce bill. I think that is wise at this stage. But we have also said that we may wish to pay to continue to take part in some EU programmes, such as Horizon 2020, the EU’s research and innovation programme. I think that is sensible.

It is illuminating that throughout the Bible there is a theme of one empire after another eventually overreaching itself and gradually collapsing. In the Old Testament there were the Egyptians, followed by the Assyrians, the Babylonians and finally the Persian Empire. In the New Testament there were the powerful Roman rulers. But all these empires eventually fell, because national sovereignty proved more sustainable than the politics of imposed empire.

Over the next couple of years and beyond, there will be no shortage of critics scaremongering and predicting disaster for Brexit. But fear is that dark room where only negatives are developed. We must not be like the paranoid patient who visits his doctor, to be told, “Please listen. You’ve got hypochondria”, and the patient replies, “Oh no, not that as well!”.

Will our negotiations with the EU be a good-natured “Strictly Come Dancing” duet or a bad tempered “High Noon” duel? Earlier this week the Prime Minister urged “jaw-jaw” not war-war. I was also encouraged by the comment yesterday by the President of the European Commission, Jean-Claude Juncker, who told MEPs:

“We will of course negotiate in friendship and openness and not in a hostile mood, with a country that has brought so much to our union and will remain close to hearts long after they have left”.

I was further heartened by the EU’s Michel Barnier adding yesterday:

“The ‘no deal’ scenario is not the scenario we are looking for. We are looking for success, not against the United Kingdom but with the United Kingdom”.

I note also that this very lunchtime Donald Tusk is meeting our Prime Minister, and that augurs well.

I am not suggesting that the next two years will be easy. But the British people and both Houses of Parliament have spoken, Article 50 has been triggered, and we must approach these Brexit and trade negotiations with a confident, robust spirit. As Sir Winston Churchill once said:

“Difficulties mastered are opportunities won”.