Money Margaret Thatcher’s prized ‘rebate’ dragged into Brexit bill talks

17:50  20 july  2017
17:50  20 july  2017 Source:   The Financial Times

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Margaret Thatcher ’ s prized “ rebate ” on EU budget contributions was pulled into Brexit negotiations on Tuesday as the two sides hit an impasse over the UK’s exit bill . During two days of negotiations that made only “slow progress” across the board

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Margaret Thatcher’s prized “rebate” on EU budget contributions was pulled into Brexit negotiations on Tuesday as the two sides hit an impasse over the UK’s exit bill.

During two days of negotiations that made only “slow progress” across the board, participants said that Britain’s financial settlement stood out as the toughest subject, with neither side budging from opening stances.

Following hours of to-and-fro over the exit charge, which the EU estimates to be up to €100bn gross, negotiators hit an issue that has divided Brussels for more than three decades: the justification for Britain’s rebate and its link to farm payments.

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The “UK correction” secured by Thatcher in 1984 carries hallowed status for the Conservative party. The EU’s insistence that it is tied in any exit bill to post-Brexit agriculture payments highlights the unexpected political snags emerging as negotiators grind through the divorce.

Other sensitive topics arising this week range from the complications of UK immigration law in the common travel area with Ireland, to the handling of nuclear waste, and family reunion rights of EU citizens in Britain.

While there was some convergence in discussions on citizen rights, goods on the market and nuclear co-operation, progress was limited compared with the substantial differences that remain, according to people familiar with the deliberations.

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The most serious stalemate was on money. European Commission officials are demanding more clarity on a recent statement by British ministers in which they accepted that the UK had financial obligations to the EU that outlasted membership.

British officials in turn refused to go further, saying it would not be possible to elaborate on that significant ministerial overture without the EU giving full legal explanation for what London sees as a thinly justified exit bill.

Officials last week feared a breakdown in talks after Boris Johnson, the foreign secretary, said the EU could “go whistle” over the exit charge. While the British concessions averted a collapse this week, both sides were frustrated by the stilted discussion since Monday.

When the topic turned to setting a percentage share of common liabilities, EU negotiators argued that Britain’s rebate was contingent on London’s continuing to cover EU farm payments after Brexit.

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Behind the scenes, France is pressing hard to tie the rebate to agriculture payments, arguing that Thatcher justified the discount only because of Britain’s disproportionate net contribution to farm spending.

However, these payments are by far the most legally contentious element of the Brexit bill, a weakness British negotiators repeatedly sought to exploit in talks. The commission’s original Brexit bill estimates excluded farm payments and its methodology changed only at the behest of France and Poland. 

Without paying these agricultural subsidies in 2019 and 2020, Britain’s estimated share of all EU liabilities would rise from 13 per cent to 15 per cent, according to internal commission figures disclosed to EU27 diplomats last month.

That means the loss of the rebate would add about €10bn in net terms to Britain’s exit bill if farm subsidies were deducted, according to Financial Times estimates.

Perhaps more importantly, the rebate carries huge symbolic value in Westminster and its emergence as a factor in any exit settlement is likely to further complicate the already fraught politics around any bill.

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Both sides agree that no figures will be put on the settlement during the first phase of talks, which they hope to complete by an October summit of EU leaders.

However, the EU side is insisting that Britain detail joint financial obligations and agree to honour its share, a methodology with which it is relatively easy to generate figures using EU accounts.

After the first rounds of talks, the EU side told diplomats that they feared the UK side still had no mandate to discuss the financial settlement in detail. The UK says it is confident of its legal arguments and will not offer firm binding commitments until a trade deal is agreed.

Asked about the 98 officials who are in Brussels as part of the British delegation, Margaritis Schinas, the commission spokesperson, said: “We don’t feel that we have been invaded.

“For us, the Article 50 negotiations are now in the hands of the divorce lawyers; these are the people who do the job,” he said.

Budget talks were so intense that on Monday officials forgot to take their allocated coffee break. On Tuesday, the teams were given a “hot room” under the full glare of the sun but were at least provided with water.

On the subject of the UK-Ireland common travel area, both sides acknowledged that more work needed to be done on issues that emerged through the exchanges. This included topics such as the visa regime and interaction with the immigration system.

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Britain is ready to maintain free movement for EU citizens during a transition period lasting a number of years after the official moment of Brexit, reports have suggested. A report in The Times said Prime Minister Theresa May is ready to offer free movement for two years under a plan drawn up by Chancellor Philip Hammond, while the Guardian quoted "a senior Cabinet source" as saying that the period could last for three or even four years.

Source: http://uk.pressfrom.com/news/money/-187625-margaret-thatcher-s-prized-rebate-dragged-into-brexit-bill-talks/

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