Background to the report

The United Kingdom (UK) is scheduled to leave the European Union (EU) on 29 March 2019. The government has agreed with the EU the terms of the UK’s withdrawal, including how it will establish a new relationship with the EU during an implementation period. As part of this agreement, the UK will continue to participate in the EU’s annual budgets in 2019 and 2020 as if it had remained a member state. It will also pay a share of the outstanding commitments and net liabilities that the EU entered into by the end of 2020. This is known as the ‘financial settlement’.

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In April 2018, we reported on HM Treasury’s central estimate of the cost of the financial settlement.  We concluded that HM Treasury’s estimate that the financial settlement would cost between £35 billion and £39 billion was reasonable given the parameters it had set for the estimate. We noted that future events would determine significant elements of the financial settlement’s cost and that relatively small changes in events could push the cost of the financial settlement outside HM Treasury’s published range. Since April, additional information has become available that means forecasts of the value of some of the financial settlement’s components can be updated.

The government’s agreement with the EU has two major components: a Withdrawal Agreement, setting out the arrangements for the UK’s withdrawal from the EU; and a political declaration on the terms of the future relationship between the UK and the EU. The Withdrawal Agreement includes the terms of the financial settlement. The House of Commons is due to have a ‘meaningful vote’ on the government’s agreement with the EU.

Content and scope of the report

This report aims to provide greater clarity on the financial settlement’s place in the wider context of the government’s agreement with the EU in advance of the ‘meaningful vote’:

  • Part One sets out the different components of the agreement. It highlights that, if the UK and EU ratify the Withdrawal Agreement, the UK will be committed to making financial settlement payments before the future relationship has been finalised. This part also explains that any costs that might be associated with the UK’s future relationship with the EU are outside the scope of the financial settlement, as are the costs that the government is incurring in preparing for withdrawal.
  • Part Two sets out the latest estimates of the financial settlement’s value based on new information that has become available since our first report. Although latest government estimates of the financial settlement’s value remain within the range of HM Treasury’s initial central estimate, uncertainties remain about what its actual value will be.

This report sets out the series of events the government expects to take place in taking forward its agreement with the EU. It does not cover the implications of the UK leaving the EU without an agreement, or of there being modifications to the existing agreement, such as extending the implementation period.


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