The full cost of the UK’s Brexit divorce bill remains uncertain and could differ from the £35-39 billion figure put forward by the Government, financial watchdogs have said.
While the National Audit Office (NAO) described the estimate as “reasonable” it stressed the sum was based on a number of assumptions about what will happen in the future.
The total cost of the exit settlement cannot be defined until there is more certainty in areas like UK economic performance in 2019 and 2020, the cost of pension liabilities, how much British organisations will continue to receive in EU funding after withdrawal, and exchange rate fluctuations as the divorce bill will be paid in euros, according to the study.
The report states: “Relatively small changes to some assumptions about future events could push the cost outside of HM Treasury’s £35 billion to £39 billion range.”
How much the UK contributes to the EU annual budgets in 2019 and 2020 will be calculated on the basis of the UK’s future economic outlook, which will also partly determine Britain’s share of outstanding commitments and liabilities after 2020, the report states.
Due to EU financial rules the UK could have to pay up to £3 billion more in budget contributions after formal withdrawal in March 2019 than the Treasury estimates in order to offset earlier payments being lower, the NAO said.
The UK could have to pay towards other costs, which are not in the Government estimate, such as potential liabilities that could depend on future events, and Britain will also provide a guarantee worth 35.7 billion euro to the European Investment Bank.
However, the NAO report said the Treasury and EU “consider the risk of these liabilities crystallising to be remote.”
The UK will also pay £2.9 billion to the UK European Development Fund for overseas aid which is not featured in the exit settlement estimate because the fund was not established under EU treaties.
Britain’s contribution to the EU pension scheme may last until 2064 unless the Government decides to pay off its commitments earlier in a lump sum which would present “risks and opportunities to the total value the UK may be liable to pay”.
Our children and grandchildren risk being saddled with paying off this bill for decades to comeMeg Hillier, chairwoman of the Commons Public Accounts Committee
The NAO states: “The terms of the settlement, which mark 31 December 2020 as a key date for determining the UK’s share of liabilities, mean the EU Commission could skew future decisions and impact the total value the UK will have to pay back.”
Britain is seeking a transition period between officially exiting the EU in March 2019 and the end of 2020.
The Government is dependent on information it receives from the EU to calculate the final settlement, but can appoint auditors to review such figures, the NAO said.
The watchdog called on the Government to consider “how it will update Parliament with revised estimates as new information becomes available”.
Head of the NAO, Sir Amyas Morse, said: “The estimate reflects a number of moving parts, so the range of costs in it could have been wider than £35 billion to £39 billion. But overall we think it is a reasonable estimate.
“As the vote on the draft withdrawal agreement approaches we expect that Government will provide a substantial amount of material for Parliament to consider.”
Chairwoman of the Commons Public Accounts Committee, Meg Hillier, said: “The Government’s divorce bill estimate of between £35 billion to £39 billion is exactly that, an estimate.
“Whereas the promises made by some Brexiteers of the bounty that our public services would receive post-Brexit are likely to be downgraded, I fear the cost of the UK leaving the EU could increase further.
“Our children and grandchildren risk being saddled with paying off this bill for decades to come.
“As negotiations continue and the real costs of the divorce bill come to light, the Government must be clear with the British public what we are paying for and why. If not, taxpayers will feel we are being sold a raw deal.”
Nicky Morgan, chairwoman of the Commons Treasury Committee which asked the NAO to look at the issue, said: “It has judged that the Government’s estimate of the UK’s withdrawal payment to the EU is “reasonable”, but it appears to be shrouded in uncertainty.
“As the report states, the Treasury didn’t incorporate some of the main uncertainties – of which it was aware – in its figure. For example, the settlement estimate doesn’t include the UK’s commitments to the European Development Fund, which the Treasury expects will cost £2.9 billion after the UK leaves the EU.”
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.”