Britain has agreed to fully honour its financial commitments as identified by Brussels. Currently, neither the UK government nor the EU have put a figure on the total amount but estimates imply that the payment will amount to about €40bn on a net basis.
The Brexit Bill payment had been one of the main sticking points during the first round of negotiations. In September, May suggested that the UK would be willing to pay about €20bn, and the EU has since been calling for this to be increased.
The news breaking overnight saw Sterling 0.5 per cent higher at $1.3404 on Wednesday morning. Against the euro, sterling was 0.2 per cent stronger, with £0.8856 required for a unit of the shared currency.
Both sides have stated that no final figure will be set next week but Brussels has said that it “broadly welcomes” the UK offer to fully honour financial commitments. It’s reported that the UK would like to avoid a lump-sum settlement and instead plans to develop a system to calculate payments over the years, when specific liabilities are due.
However under such a system, pensions of EU officials might be paid on the basis of annual costs, therefore there will be no concluding Brexit bill figure until the last eligible EU official pensioner is dead, many years from today.
Leading economists have stated that the actual size of Britain’s Brexit bill will ‘not make a significant difference to the public finances.’ Paul Johnson, director of the Institute for Fiscal Studies explained that most of the bill was money the UK would be paying if it had stayed in the EU. “If leaving the EU had no economic impact and we were paying £8bn in, then paying £40bn upfront would be a win,” Mr. Johnson said, as after five years of no longer having to pay, the UK would then be saving money. He concluded that, “What really matters vastly more is what is the impact on growth. If [leaving the EU] is negative, which it almost certainly will be, then the future savings will be a lot less.”
There may in fact be an economic benefit from paying the bill quickly and moving on rapidly, Jagjit Chadha, director of the National Institute of Economic and Social Research, told the Treasury select committee. “If these negotiations are prolonged, they lead to uncertainty, delays in investment . . . and the impact on the economy from that is much larger than a one-off bill of 2 per cent of [national income],” he said.
May is expected to formally present the breakthrough offer next week as part of a deal if agreement can be reached on the citizen rights and the contentious question of the border between Northern Ireland and the Republic.
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