U.K. May Be Set for Early Clash Over Brexit Costs

(Bloomberg) -- U.K. Prime Minister Theresa May's government looks set for an early clash with European Union leaders over the terms of Brexit as a report suggested it can leave the bloc without paying a financial settlement.

The Times newspaper on Saturday said government lawyers concluded there is no law or treaty to compel the U.K. to pay the bill EU officials have estimated at about 60 billion euros ($64 billion). That echoed a newly published finding of a House of Lords committee.

Balking over a departure bill would risk a rancorous start to negotiations and make it harder for Britain to secure the favorable access to EU markets it still wants to enjoy after Brexit.

The Lords report, released Saturday, said Britain and the EU's 27 other members should nonetheless seek a “fair” divorce because of the “gravity” of failing to reach a deal. A stalemate over the departure bill will make it harder for the government to secure access to EU markets on favorable terms, the upper chamber's EU Financial Affairs Sub-Committee said in the report.

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“Even though we consider that the U.K. will not be legally obliged to pay in to the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations,” Committee Chairwoman Kishwer Falkner said in a statement. “The government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations.”

Haggling over how much Britain owes appears set to provide an early test of the formal negotiations, which May has pledged to invoke by the end of March. Austrian Chancellor Christian Kern became the first EU leader to put a value on the bill when he told Bloomberg last month that Britain should be charged about 60 billion euros. 

That sparked anger from May's Conservative Party, with former leader Iain Duncan Smith calling it “nonsense.” Trade Secretary Liam Fox has dismissed the idea of paying anything at all as “absurd.” 

The Lords report detailed different ways an exit bill could be calculated, with the sum ranging from about 15 billion euros to more than 60 billion euros. The amount could include contributions to future commitments made by Britain while still a member of the EU, as well as pension liabilities for those working in EU institutions that could range from 2.5 billion euros to 9.6 billion euros.

After Brexit, the U.K. will cease to pay contributions to the EU that totaled more than 19 billion euros in each of 2013, 2014 and 2015, the panel said. Net contributions averaged about 7.1 billion euros in recent years, once the annual rebate, agricultural funding and grants and subsidies to the public and private sector are taken into account.  

If Britain pays no exit bill, individual EU members may seek to bring a case against the U.K. for payment of outstanding liabilities, “but international law is slow to litigate and hard to enforce,” the panel said.

“The forthcoming negotiations will be more than just a trial of strength,” Falkner said. “They will be about establishing a stable, cooperative and amicable relationship between the U.K. and the EU. This will not be possible without good will on both sides.”

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net.

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Kevin Costelloe, Brian Wingfield