The UK is to pay a Brexit bill. Lots of people are upset. Extreme leavers reckon we shouldn’t have to pay a penny, on the basis that there is no legal reason to do so. Extreme remainers are upset, because as far as they can see, the only tiny upside to Brexit is a small up-front cash saving to serve as a mini-buffer to the financial apocalypse they (still) have no doubt is on the way.
Here at MoneyWeek, we aren’t much bothered. Regular readers will know that we worry endlessly about the public finances (for a hint as to why, see James Ferguson’s analysis piece). But this Brexit bill doesn’t make things much worse. First, if the final bill does turn out to be in the region of €45bn-€55bn (£38bn-£48bn – no figure has been confirmed), this really isn’t much in the great scheme of the UK’s public finances. It’s significantly less than the (far too much) we spend on the interest on our debt every year; it is not much more than a third of what we spend on paying the state pension in the UK every year; and it adds up to around 2.5% of one year of our GDP.
Second, it isn’t to be paid as a lump sum (apparently – remember this is all pretty vague at the moment), but for the transition period (that’s about £9bn a year for two years, if we assume that our annual bill in transition is the same as our annual bill now) and then in dribs and drabs as the bills for things we have agreed to during our membership arrive (all those expensive pensions for example). That makes it rather more palatable than it might have been.
Third, even this sum will shortly leave quite a cash buffer: it adds up to four to five years’ worth of our current payments. Since 2000 we have paid the EU more than €100bn more than we have received back. Finally, it comes to about £600 per person – or 7% of a bitcoin. We haven’t been commenting much on Brexit here for a while. The process involves an overlay of press hysteria and an underlay of steady admin completion which makes most comment pointless – and we have also been assuming a fairly straightforward result since the referendum last year.
What’s on the cards? A wind-down of our contributions in the region now being suggested (something we think of as being something of a kindness to an EU that really can’t cope with a hole in its budget just now). A fairly all-encompassing trade deal, alongside a freedom of movement deal that limits tax credits and welfare to new arrivals (again, see James Ferguson on why this matters). A sensible agreement on Ireland. And in the end, a new relationship with the EU that respects both sovereignty and the economy on both sides. So far so good.