How the Brexit bill negotiations are likely to disadvantage the young

Angus Hanton, co-founder of IF, explains why the figure of 100 billion euros has been bandied about, and why Britain’s liabilities are typical of the casual commitments that politicians make, without considering the consequences for younger generations

Some young people may feel betrayed by the Brexit decision, and some feel that likely restrictions on free movement of labour and goods will blight their future, but what of the actual bill that Britain will have to pay? This is potentially a very large payment and could equate to most of the costs of running the NHS for a year (of the order of £100 billion). The leaving bill is likely to have several elements and they illustrate how politicians have tended to “kick the can down the road” by pushing liabilities into the future while spending today.

Fair share?

Britain’s share of the EU commitments is between 12% and 15% because we are one of the largest of the 28 EU countries: Britain has about 13% of the EU’s 500 million population. The remaining 27 countries are insisting that Britain agrees its bill before they will discuss the border issues – trade and movement of people.

About a third of the leaving bill is what the French call “reste à liquider”, which are projects the EU has agreed on and which have still to be paid out – and the UK’s share of that could be about 36 billion euros. These are EU-funded roads and railways that have been committed to but not paid. The nature of EU support means that these will be disproportionately for projects in poorer countries, often on the Eastern and Southern edges of Europe.

Another big element is the pensions commitments which are around 10 billion euros and these pensions are the “take-as-you-go” variety – in other words they are unfunded and represent promises made based on final salaries, without a fund of real money having been built up to pay them. In effect, most government pensions in both the EU and the UK have been set up on that basis: officials have made unfunded pension promises expecting younger people and future people to pay for them. It’s quite likely that this cost will in some way be hidden in the final settlement (assuming there is one). They could, for example, be hidden by the British agreeing to take on the liability rather than finding the money in hard cash – after all, it would be odd for the EU to have a mainly unfunded scheme but with a pile of cash for the proportion of pensions future UK taxpayers are required to pay.

The really contentious issues are the many projects that the EU commits to between the time of the Brexit vote and when Britain actually leaves. These are expenditures like the “cohesion” funds for poorer areas, rural subsidies, and cross-border infrastructure funds. In total these could cost the UK about 27 billion euros. In terms of young people in the UK, they might ask why their country should be taking on these debts that will fall most heavily on them when they will get little or no benefit from this expenditure.

Then there is a large lump of expenditure relating to the actual running of the EU enterprise. This is a surprisingly large figure at about another 27 billion euros and some countries led by France and Poland are saying that Britain should be contributing to this right up until 2020.

Finally the question of contingent liabilities: the EU makes many promises which are not expected to be called upon, such as promises to pay loan notes and other guarantees. If these amount to around 90 billion euros then Britain’s share of these would be 12 billion euros, and it is thought that Mr Junker and the EU negotiators will argue that Britain should make an upfront payment for these.

Promises, promises

The whole Brexit bill discussion illustrates how readily EU politicians – with the connivance of the British for the last 43 years – have built up a set of unfunded commitments which will have to be paid for by the next generation.

Let’s put this in stark terms: if the Brexit bill of, say £100 billion, were to be split equally between the UK’s 12.5 million young people (aged 15–30) they would each have to find £8,000 of hard cash.

That’s only the liabilities for leaving the club – Britain also has its own liabilities of perhaps fifty times this amount.

Posted on: 9 May, 2017