We don't owe the EU any money as a Brexit divorce bill. That's the conclusion that we have come to after an exhaustive analysis of the claims the EU Commission sent to the British Government in June.
The Government would therefore be right to stand firm and not be blackmailed into a multi-billion pound divorce bill – particularly as it turns out the legal position is that the EU owes us €10 billion.
The European Commission's negotiating guidelines state that any financial settlement between the UK and the EU should respect in full the financial obligations resulting from the whole period of our membership. The EU's approach clearly represents the most extensive possible claim it can make.
The EU's main claim appears to be that the UK is obliged to contribute to the EU's budget for a period of roughly two years after withdrawal. This claim is without merit as a matter of international law. The EU's "Own Resources Decision" and its "Multiannual Financial Framework" are legally subordinate to the EU treaties. They have no binding force in law independently of the treaties. Therefore they cease to impose any legal obligation on the date when the Treaties themselves cease to apply to the UK – on March 29th 2019.
The EU's second claim relates to the large deficit of its staff pension scheme. The UK could not be liable for a share of that without having a claim on a corresponding share of EU assets. Yet there is no general practice in international law of States making or receiving balancing payments representing the net assets or liabilities of an international organisation when they join or withdraw. No such balancing payments were made when Member States joined the EU. It is therefore difficult to see any credible basis upon which the UK is obliged to make any net payment when it leaves.
The European Investment Bank (EIB) is in a rather different position. Member States have paid up capital to this organisation, which stands in its books. There is a compelling argument that the UK, on EU exit, is entitled to the return of its paid up capital and to a corresponding share of the accumulated reserves of the EIB. This amounts to about €10 billion.
The adjudication of these claims does not fall under the jurisdiction of the European Court of Justice under the EU treaties, or the International Court of Justice under its Statute. Because of the strength of the UK's legal position, the Government could propose that these financial claims (and its own counter-claims) be submitted to binding international arbitration before a neutral forum. Such a course is customary in settling questions of international law. It would make it clear the UK is intent on meeting its proper legal obligations. It could also provide a route to unlock the deadlock over these financial claims in the exit negotiations.
It's not just a question of international law. It's also hard to see any moral basis to making a financial payment to the EU on departure. Nevertheless it may be that in order for the UK to leave the EU on a positive note and to focus on building deeper relationships with the rest of the world, making a payment would speed things along.
There may be value for the UK in achieving a departure with goodwill and to achieve that departure speedily. Then we can concentrate on trade with the rest of the world – markets that will account for over 80% of future global growth. It's far from ideal to be stuck in a rut haggling over figures with an important trading partner. However, whatever value there is in making such a payment, it's clearly not of the kind of levels the EU Commission might like to imagine.
Our report shows how weak the European Commission's claims for payment are. Their position paper fails to provide a credible argument why the UK should be legally liable for the vast sums of money being claimed. In law, we will owe no money at all to the EU when we leave while we are owed for the return of capital the UK has in the EIB.
The former Brexit Secretary, David Davis, said that the Government is going through the European Commission's claims 'line by line'. He's right – because it's clear we don't owe the EU any money.
Download the full report here.
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