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Brexit: UK and EU clash over Brexit divorce bill valuation

  • UK and EU heading for a collision course over Brexit divorce bill
  • Treasury claims UK owes GBP 3.5BN less than Brussels estimates
  • Britain’s Trade Secretary Liz Truss downplays UK-US trade deal
  • Spike in UK inflation triggers concerns over long term outlook of UK economy

Britain and the European Union appear to be on a new collision course over the valuation of the Brexit divorce bill.

According to Her Majesty’s (HM) Treasury, the UK owes approximately GBP 3.BN less than what Brussels is asking for – paving the way for another dispute between both sides.

Although the UK is no longer part of the EU, it remains liable for financing all of its obligations from when it was a member of the European Union, including budget contributions and funding the pensions of EU officials.

While the two sides agreed on a methodology for calculating the divorce bill during negotiations, the EU and the UK have reached different conclusions as an exact figure was not settled during Brexit trade talks.

Brussels and London are now at loggerheads over the total amount payable. The bloc has demanded an additional GBP 3.5BN, while Downing Street insists that it does not recognise the EU’s figures.

The Treasury said the UK does not owe the GBP 3BN the bloc is demanding as Brussels has failed to consider payment owed in return.

Chief Secretary to the Treasury, Steve Barclay, claimed that the financial settlement value was GBP 37.3BN – still slightly higher than the estimated GBP 37.1BN calculated by former Prime Minister Theresa May and the Office of Budget Responsibility (OBR) three years ago.

Although the UK government insists that it paid a portion of the Brexit divorce bill earlier this year, Parliament has not contested the EU’s claims that EUR 6.8BN is outstanding.

However, Mr Barclay said that the first invoice, worth GBP 3.5BN, is being processed, and so the UK does not owe GBP 40BN.

Estimates made by the British government have been contained in an annual Treasury report on EU finances, noting that London has paid out more than GBP 12BN since the 2016 Brexit referendum.

HM Treasury stated that the funds covered Brexit preparations such as no-deal planning, new departments, employing civil service staff and improving borders.

Whitehall also confirmed that Britain plans to reapply to EU schemes for research, higher education, earth observation and energy post-Brexit, which will give UK scientists, researchers and businesses access to funding on equivalent terms as EU organisations.

UK opts into EU funding programmes

UK re-opts into EU funding programmes

Downing Street decided to opt into EU funding schemes but has declined to comment precisely how much Britain will be contributing to EU programmes, merely stating that the UK will make a “proportionate and administrative contribution” to the cost of running these schemes.

Britain and the EU will also continue to fund the Peace Plus programme in Northern Ireland, albeit under a separate finance agreement.

The Peace Plus programme, which is worth GBP 1BN, has been designed to support peace, prosperity and stability in Northern Ireland and border counties of Ireland in the face of new challenges stemming from the UK’s departure from the EU.

It is hoped that by 2027 when the programme ends, work conducted under the scheme will have positively contributed to gross domestic product (GDP) and support cooperation between the different regions.

The Treasury’s report did not include plans to reinstate the Erasmus student exchange programme, which UK Prime Minister Boris Johnson withdrew from on the grounds of expense.

From September 21st 2021, the British government will replace the Erasmus programme with the Turing Scheme, which universities minister Michelle Donelan said will allow 35,000 students to work or study abroad.

The UK government’s Turing Scheme has prompted widespread criticism, with some claiming that it is not as generous as the Erasmus programme as it doesn’t offer placements for staff and faculty members or funding for inbound students.

PM Boris Johnson’s decision to pull out of the Erasmus programme came as a surprise to many, especially as the annual divorce bill payments are considerably lower than the cost of annual EU membership.

However, critics have said that savings need to be weighed against the impact of losing access to the EU’s single market, which accounted for 44% of UK exports.

The two sides had engaged in a bitter row over financial responsibilities before reaching an agreement on the value of the financial settlement.

During negotiations, the UK estimated that the Brexit divorce bill would be smaller than GBP 39BN due to numerous trade talk extensions that forced Britain to contribute to the EU Budget for longer.

Several MPs have urged the UK government to withhold payments due to the ongoing dispute over Northern Ireland protocol.

On Thursday, Minister of State in the Cabinet Office, Lord David Frost, told the House of Lords that Britain stands by its financial commitments and will not back down.

However, he admitted that the final settlement figure could be debated, stating that “while he is not comfortable about paying large sums of money to the EU, it has been agreed by both sides in the Withdrawal Agreement and we stand by it.”

Conversely, a Downing Street spokesman told reporters that “we don’t recognise the figure”, setting up a new Brexit battle between the EU and the UK.

There has also been little sign of the UK and the US signing a transatlantic trade agreement, which would be one of the biggest prizes for post-Brexit Britain

UK-US trade deal unlikely to be reached before 2023

Liz Truss unlikely to secure a transatlantic trade deal with the US

When asked whether Britain is closer to securing a trade deal with the United States by reporters, UK International Trade Secretary Liz Truss responded, stating she was focused on clinching the “right deal” rather than a quick one.

Ms Truss went on to say that reaching an agreement by 2021-end would be “extremely fast”, downplaying the likelihood of a trade deal being secured in the next year.

Although the International Trade Secretary did not set a deadline for UK-US negotiations, last September, she said she hoped Britain could reach a deal with America by July 2021.

However, earlier this month, Ms Truss admitted that securing a transatlantic trade deal before 2023 was unlikely.

Sources close to Ms Truss said that she is keen to build a much broader base of support from key tech industries and politicians to boost Brexit Britain’s appeal.

It comes amid news confirming that US President Joe Biden no longer has the legal power to fast-track deals through Congress.

Still, the prospect of a UK-US trade deal being reached by July 2021 was unlikely given that the Biden administration is focusing on domestic matters and the trade deal with China.

Expectations for a transatlantic trade agreement faded when Joe Biden was elected as US President. Before then, former US President Donald Trump had told British Prime Minister Boris Johnson that he believes the United States will strike a “fantastic deal with Britain as progress is moving along rapidly.”

That said, Ms Truss has previously stated that most elements of the US-UK trade deal have been agreed upon, albeit the most controversial aspects of the agreement, such as access to hormone-treated and chlorine-washed meat, are yet to be negotiated.

The two sides have reportedly resolved the dispute over commercial aircraft subsidies, agreeing on a five-year suspension on tariffs affecting goods such as Scotch whisky, cheese and construction vehicles imported by Boeing and Airbus.

The dispute over commercial subsidies saw former US President Donald Trump imposing 25% taxes on British exports worth GBP 550M, so the truce will more than likely be seen as an opportunity to strengthen its bilateral relationship.

Boris Johnson has also stated that a US-UK trade deal would be a significant win for Brexit Britain. Ministers are now hoping that the truce on commercial subsidies will pave the way for an early trade deal with the world’s largest economy, especially amid concerns of the economy overheating.

International Trade Secretary Liz Truss is currently engaged in talks with US counterpart Katherine Tai and Commerce Secretary Gina Raimondo on tariffs on steel.

Is rising inflation the biggest threat to the UK economy?

The surge in consumer prices across both sides of the Atlantic is fuelling fears about the risk of some of the world’s largest economies overheating.

In the UK, inflation surpassed the Bank of England’s (BoE) 2% target and hit 2.5% in June – its highest level since 2018.

Official statistics revealed that higher food and fuel costs were driving inflation higher, and economists are concerned that price pressures will persist following the July 19th reopening.

If we see a broader trend of rising prices, this could trigger an early end to BoE’s bond-buying programme and force the central bank to raise interest rates, which would slow growth and reduce productivity.

According to recent modelling, a UK-US trade deal could significantly reduce consumer prices by increasing choice and removing barriers to imports with lower tariffs.