Britain will not contribute £50bn to EU budget if no Brexit deal is reached, says Lords report

‘The UK appears to have a strong legal position in respect of the EU budget post-Brexit and this provides important context to the Article 50 negotiations’

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Britain will not be legally obliged to contribute towards the European Union’s budget if no exit deal is reached, according to a new House of Lords analysis.

The report from the Lords also claims that calculations of the UK’s so-called “divorce bill” from the EU are “hugely speculative” and almost every element is subject to interpretation. Michel Barnier, the European Commission’s chief Brexit negotiator, has reportedly placed such a bill close to €60bn (£52bn).

According to the Lords, EU budget payments – likely to be a contentious issue throughout the Article 50 negotiating period – would not be enforceable and the UK would be in a “strong” legal position to not pay a penny if talks ended with no deal.

It comes after David Davis, the Brexit Secretary, said earlier this year that the Government would not rule out making future payments to the EU’s budget in order to secure favourable access to Europe’s markets. His words were echoed by the Chancellor Philip Hammond, who added that Mr Davis was “absolutely right not to rule out the possibility that we might want to contribute in some way to some form of mechanism”.

But Theresa May has warned her European allies that the UK is prepared to crash out of the EU if no reasonable Brexit deal is agreed on. In this case, the Lords add, Britain will not be liable to make any further financial contributions to the budget.

In her keynote speech at Lancaster House the Prime Minister added: “And while I am confident that this scenario need never arise – while I am sure a positive agreement can be reached – I am equally clear that no deal for Britain is better than a bad deal for Britain.”

Government suffers defeat in Lords over plan to begin Brexit negotiations

The report by the House of Lords EU financial affairs sub-committee explained: “Although there are competing interpretations, we conclude that if agreement is not reach, all EU law – including provisions concerning ongoing financial contributions and machinery for adjudication – will cease to apply, and the UK would be subject to no enforceable obligation to make any financial contribution at all.

“This would undesirable for the remaining member states, who would have to plug the hole in the budget created by the UK’s exit without any kind of transition. It would also damage the prospects of reaching a friendly agreement on other issues.”

The report noted that such a “disorderly exit” would create a legal and political void and that both sides – Britain and the EU – should recognise the gravity of a no-deal. “An inability to reach an agreement on the budget will undermine the Government’s aim to negotiate market access on favourable terms,” the authors added.

Commenting on the report, the chair of the Lords committee Baroness Falkner of Margravine said: “The UK appears to have a strong legal position in respect of the EU budget post-Brexit and this provides important context to the Article 50 negotiations.

“Even though we consider that the UK will not be legally obliged to pay in to the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations. The Government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations.

“The forthcoming negotiations will be more than just a trial of strength. They will be about establishing a stable, cooperative and amicable relationship between the UK and the EU. This will not be possible without good will on both sides.”