Theresa May’s speech in Tuscany would introduce the possibility of the UK making EU payments during the Brexit transition period © FT montage; AP/Dreamstime
Theresa May will attempt to break the Brexit impasse when she delivers a speech next week in Florence setting out her plans for a transition deal that is seen in London as the “key” to addressing Brussels’ concerns about a €30bn budget hole.
The prime minister is expected to flesh out Britain’s hopes for what Philip Hammond, the chancellor, has called a “status quo” transition deal, lasting for two or three years after Britain leaves the EU in March 2019.
The speech is seen as vital by British officials because it will introduce the possibility of making EU payments during the transition, helping to plug a hole in the bloc’s budget of about €30bn net between 2019 and 2021.
The most-recent official fiscal forecasts would allow Britain to make almost exactly €30bn in net payments to the EU over three years without pushing up borrowing.
An offer of payments during the transition period would be seen as a welcome step in Brussels, and would be likely improve the prospects of the two sides beginning trade talks in the coming months. The EU has said it will not start talking about its future relationship with Britain until “sufficient progress” has been made on the divorce, including a financial settlement.
EU diplomats are privately warning British officials that any transition would involve additional contributions for continued access to the single market — meaning there would still be an overhang of debts at the end of the transition to resolve.
“Obviously should there be transition . . . there is a contribution to make for that single market participation which is independent and on top of any debts from the past,” said a senior EU official.
The Office for Budget Responsibility has assumed in its latest forecasts that the UK government will continue to face budgetary costs equal to those of remaining an EU member, even after Brexit.
“Theresa May should use her Florence speech to admit something that everybody in Whitehall already knows: the government has set aside £27bn of payments to the EU in this parliament after we leave,” said Nick Clegg, former deputy prime minister.
“She should deploy this unused reserve, buried in the OBR’s own figures, to unblock the Brexit talks,” he added. “EU negotiators can read the OBR documents as well as anyone else.”
The OBR forecasts factor in gross payments of between £16bn and £17bn a year for the three years from 2019-20 to 2021-22. However, if the government wanted to fully replicate its current support to the EU for activities such as agriculture, rural development and research, the net contributions to the bloc would fall to about £9bn a year.
George Bridges, former Brexit minister, appealed to Mrs May this week to use the transition to open up discussions on money.
“We should make it clear that we are willing to contribute to the EU budget as we cross the bridge,” he said in a speech in the House of Lords, saying an offer would “address the EU’s concern that our withdrawal blows a hole in the budget”.
“We would be honouring commitments we have made for the rest of the EU’s budgetary period,” Lord Bridges added. “The EU would then need to justify why we must contribute more than that.”
Mrs May has not made any decision on the size of the so-called “Brexit bill” and Downing Street declined to comment on her Florence speech. But the prime minister is keenly aware that money is her most powerful weapon in exit talks with the EU, which will enter their fourth round this month.
“The danger is that if we offer money now, there won’t be much left to use as leverage when we come to negotiate the free trade agreement,” said one cabinet minister. But another UK official said: “The transition is the key to the money issue.”
Mr Hammond has said he wants a transition that “looks a lot like the status quo”, while Brexit secretary David Davis has said the UK is seeking an interim deal “as close as possible to the current circumstances”.
According to the EU’s negotiating directives, any transition must be for a limited time and, if it involves an extension of single market law, must apply existing EU “regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures” to the UK.