On 4th March, the European Union Committee published "Brexit and the EU budget" - 15th Report of Session 2016-17 - House of Lords Paper 125. The Report Summary notes that the budget will be a contentious issue during the UK's negotiations over leaving the EU. The UK provides approximately 12% of the resources available to the EU budget, and is also a significant net contributor. The removal of the UK’s payments into the budget will require the other EU Member States to agree either to pay more into the budget, or draw less from it. Neither option is without difficulty, and those difficulties may colour the wider Brexit negotiations. The UK government has stated that it is open to making payments towards specific programmes in order to cement a cooperative future relationship with the EU but there are already demands from the EU, for much wider contributions.
The Report contains a legal opinion prepared by the Legal Adviser to the EU Committee relating to the UK withdrawing from the EU without an agreement. The opinion concludes:
"It follows that, under EU law, Article 50 TEU allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget, unless a withdrawal agreement is concluded which resolves this issue. (This advice does not address the political consequences of the UK withdrawing from the EU without settling outstanding payments to the EU budget and related financial instruments.)"
Irrespective of whether the legal opinion is correct, the Committee must be right to state that - "If the Government wishes to include future market access on favourable terms as part of the discussions on the withdrawal agreement, it is likely to prove impossible to do so without also reaching agreement on the issue of the budget."
This issue has also been examined in a Client Briefing published by solicitors Clifford Chance. This document notes that - "The UK and the EU will hopefully reach an agreement on payments, even though the principles are far from easy and quantification even less so. A failure to agree could sour other negotiations, including over future trading arrangements between the UK and the EU. If the EU and the UK cannot agree, the dispute might need to be resolved by a tribunal. The CJEU might consider that it has jurisdiction, though that is unlikely to be acceptable to the UK. An ad hoc international tribunal might be best, if that is legally possible for the EU."
The Clifford Chance opinion concludes: "There is no precedent for what should happen to payments to the EU and to the EU's assets on a member state's departure from the EU. The UK and the EU must, to some extent, make it up as they go along, which offers flexibility but also considerable scope for disagreement. Deciding on the relevant principles is anything but easy. Applying those principles is extraordinarily difficult."
The fact that Article 344 TFEU prohibits EU Member States from submitting the legal interpretation of the EU Treaties to a court other than the Court of Justice of the EU may prove to be an obstacle to the creation of any tribunal. Art 344 states - "Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein."
Doubtless, this is a topic to which we shall have to return. Escape from the EU without a substantial payment seems highly unlikely if the UK is to have any meaningful future relationship with the EU.
The House of Lords has done very useful work on many aspects of Brexit. See their Brexit Roundup with links to key reports, analysis and debates on Brexit from the Lords organised by topic.
See also House of Commons Exiting the EU Committee