ICAEW estimates likely Brexit bill at £15bn

The UK’s bill for leaving the EU could be no more than £5bn, and will not exceed £30bn, according to analysis by ICAEW which says it wants to bring some objectivity to current speculation about how much the UK will have to pay for Brexit

Using the EU’s 2015 accounts, ICAEW outlined the potential bill due in March 2019 with three potential scenarios - high, low, and a more likely central scenario - once the rebate and money returning to the UK is accounted for.

The institute says its findings suggest potential exit charges range from a low cost of £5bn to a maximum cost of £30bn, with the central scenario cost £15bn (based on an exchange rate of €1.20 to £1) - equivalent to £225 per person expected to be living in the UK in 2019.

Currently the UK’s share of the EU budget each year is approximately £20-£21bn, before an estimated rebate of £5-6bn, and spending returning to the UK of £6-£7bn.

While the estimated rebate is expected, the EU could attempt to withhold this if there is no agreement on wider exit charges.

Liabilities include EU staff pension and sickness payments which will be close to £63bn when the UK leaves, and of which the UK’s share is £10bn. This could be a one-off settlement or the UK could agree to contribute £0.2bn a year for the next 50 years or so.

The value of the EU’s fixed assets will also need to be determined.

Additional areas for negotiation include the European Investment Bank (EIB), of which the UK has a 16% share. As ownership of the EIB is restricted to EU members, the UK may need to sell its stake to other EU members, or existing rules may need to change.

The EU is likely to argue that costs incurred caused by the UK’s decision to leave should be paid for by the UK rather than by other member states.

Michael Izza, ICAEW CEO, said: ‘The wide-ranging speculation around the potential exit charge has escalated in recent weeks. The debate has been characterized by heat and emotion and, given the complex financial relationship between the UK and the EU, it may be difficult to understand how negotiations in this area are likely to play out.

‘As chartered accountants, we are able to provide an objective view of the numbers which I hope will offer some insight into what the net amount could look like.’

Izza said the most contentious element of the costings is likely to be the committed spending for programmes that are included within the current EU financial framework for 2014-2020, much of which goes towards development funding for newer EU members particularly those in Eastern Europe. The negotiation will be around to what extent the UK is obliged to fund programmes that may not be underway or completed when it leaves in March 2019.

ICAEW’s analysis of the different components suggests the exit charge is likely to be much lower than current predictions, which have included a suggestion that the EU’s chief negotiator Michel Barnier has mentioned a figure of €100bn.

Izza said: ‘However we would like to see both sides agree on the bill sooner rather than later, so that attention can be focused on more important aspects of the negotiations. Although the exit charge is the subject of much discussion at the moment, we must remember that the trading relationship between the UK and the EU will have a much more significant impact on the UK economy in the long run. It is crucial that we develop a strong trading relationship with the EU if we are to improve UK business confidence and build a world of strong economies.’

The EU exit charge an ICAEW brief is here.

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