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The transition period is currently underway and the UK has officially left the EU – although all is not yet settled between the two sides. Talks to negotiate a Brexit deal are ongoing despite coronavirus, and the UK and EU are still beholden to the same rules it has held throughout its 45 year plus relationship.
Having joined the ECC in 1973, the UK and EU still have plenty to untangle in the ongoing talks.
We are in the midst of an 11-month transition period, to end on December 31 this year, giving both sides some time to agree on how the EU-UK relationship will work.
The UK’s departure from the EU will no doubt leave a reasonably large hole in the EU’s finances – Brussels, of course, wants to minimise its losses, or at least put off for as long as possible the question of whether it asks richer countries to pay more into the budget or reduces spending in poorer countries.
A large chunk of the money being asked for by the European Commission was pledged by David Cameron, when he was Prime Minister, to the long-term EU budget for the period of 2014 to 2020.
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How much does the UK owe the EU?
So-called ‘divorce payments’ were first proposed as part of Theresa May’s agreement way back in 2017.
Even then, no one knew exactly how much this would be, and details were given of how it would be calculated rather than a precise figure.
Still, an estimate of a settlement of about £39billion was given – but this was based on a Brexit date of March 29, 2019.
When Brexit was delayed – repeatedly – it meant that some of that money was paid as the UK’s normal budget contributions, so less of it was part of the divorce bill.
No fresh estimate has been given for how much the UK currently owes the EU though, but the Office for Budget Responsibility estimated in late 2019 that the new figure had fallen to £32billion.
The OBR has told the BBC the total bill for 2020 alone will be £10.69billion.
According to the BBC, the OBR expects most of the entire divorce to be paid by 2022, with some relatively small payments still being made until the 2060s.
This was the payment schedule expected for the October 2019 Brexit date, so it’s currently unclear what new plans are being made a negotiated.
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Why does the UK owe the EU money?
When the UK triggered Article 50 way back in March 2017, the two sides then had to come to a “withdrawal agreement”.
This withdrawal agreement covers how the UK ends its membership; that meant agreeing on things like its financial requirements – the divorce bill – and the rights of EU citizens in the UK and a plan to deal with the Irish border.
If we leave the EU without a deal, strictly speaking the divorce bill will not be owed by the UK to the EU.
It’s not clearly set out that the UK would be obliged to pay anything if we left with no deal, but the EU could take the case to the International Court of Justice on the grounds of the UK’s repeated commitments to pay.
The UK Government has said it will not agree to follow an EU rulebook in return for unfettered trade; the EU insists there can be no trade deal unless Britain agrees to a “level playing field” and does not undercut EU regulations.
Chief Negotiator Michel Barnier has warned that it can’t be “business as usual” if no agreement is reached by the end of the year.
“If we have no agreement … we have to face the risk of a cliff edge, in particular for trade,” he said earlier this year.
For any countries the UK doesn’t have a trade deal with at the end of the transition, World Trade Organisation rules will kick in, bringing tariffs and trade barriers.
This wouldn’t just impact the UK, but also its other trading partners.
Many hope a deal will be reached by the end of the year, especially given the economic downturn caused by coronavirus, and negotiations might continue in other areas, but exactly what would be in or out still remains to be seen.
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