What will be the impact of the Brexit divorce bill?

Since before the EU referendum result was known at the end of June 2016, the ‘divorce bill’ – the money the UK will need to pay to the EU as a result of Brexit to cover its financial liabilities – has been a hot topic of debate. It continues to be so, with the latest reports of a figure somewhere around €55 billion having been agreed by the government emerging at the end of November. Downing Street have dismissed this figure, but even if we don’t know the exact amount, it seems likely that an agreement on the way the divorce bill will be calculated has been reached, in order to allow other points of negotiation to progress.

Even if the figure of €55 billion eventually proves to be accurate, what will that actually mean for the UK? The response from some leading economists has been to suggest that, in the grand scheme of things, the divorce bill won’t make a major difference to public finances. One argument for this is that a considerable chunk of the bill will be made up of money that the UK would have been paying anyway if it was remaining in the EU.

Another element to consider is the wider impact of Brexit on UK growth in the years to come. The UK’s reduced ability to trade with the EU is predicted to have a far greater impact than the agreed amount of the divorce bill, whatever that may be, thanks to the potentially higher costs generated. If Brexit results in a negative impact on growth, as leading economists widely believe will be the case, then the divorce bill may well be relatively insignificant in comparison to the overall losses experienced by the UK.

Whatever the final deal with the EU turns out to be come the end of March 2019 when Brexit becomes a reality, it’s highly likely that the UK will be paying for the decision to vote leave for years, if not decades, into the future. The hope is that agreeing the divorce bill, whenever that might happen, will allow Britain to move on to working out how to use its exit from the EU in a positive way, creating new opportunities to balance out the financial obligations the country has agreed to honour.