Broadly speaking, each subject addressed in the financial settlement reached in the Joint Report is included in Articles in the draft WA. The table below shows where different areas of the financial settlement feature in the Joint Report and the draft WA.
As well as converting the financial settlement to legal text, the draft WA attempts to flesh out some of the details and logistics of the financial settlement.
Budgets 2019-2020 and revenue adjustment
Article 128 sets out that the UK’s contribution to and participation in the 2019 and 2020 EU Budgets will be in accordance with the rules set out for the transition period. However, the UK will not have a vote over the 2020 EU budget (which will be decided between the Member States and the European Parliament in late 2019).
EU Budgets are subject to corrections or adjustments after the year is over. Article 129 says that this process shall apply to the UK after 31 December 2020 for the financial years up to 2020. Article 129(3) suggests how the process for adjustments could work after 2020, including how the UK’s share could be calculated, and that:
- any required payments requested should be made available as part of the next scheduled payment
- the UK will be able to attend meetings of EU committees that could impact on resource corrections or adjustments. UK representatives can attend upon invitation, on a case-by-case basis, without voting rights.
- corrections or adjustments based on revisions to VAT or GNI will be time-limited UK participation in EU programmes in 2019 and 2020 Article 130 stipulates that the UK’s participation in EU programmes will be in accordance with the rules set out for the transition period. The UK will be able to participate in programmes under the current 2014-2020 budget plan and previous budget plans. The UK shall be eligible for financial operations provided that the relevant instruments were established by the EU before the date the WA comes into force.
Article 131(2) lays out the EU laws the UK must adhere to while still receiving funding from EU programmes. Article 131(3) suggests that the UK will be able to attend meetings of EU committees that assist the Commission on the implementation and management of EU programmes. UK representatives will attend upon invitation, on a case-by-case basis, without voting rights.
Outstanding commitments (RAL)
Article 133 suggests that in addition to the EU’s outstanding commitments on 31 December 2020, the UK will contribute to commitments made in 2021 that were carried over from the 2020 Budget.
Article 131(1) provides that the outstanding commitments will not include those related to areas where the UK has an opt-out or those areas that are financed by specific revenues (assigned revenues).
Articles 131(2), 131(3) and 131(4) put forward a possible approach for dealing with future payments for outstanding commitments. The draft WA suggests that the EU will provide a list of each outstanding commitment and the amount outstanding to the UK. This list will be updated for payments and decommitments in the previous year, and at the same time, the UK will be provided with an estimate of expected payments in the current year.
Article 135 provides an approach for dealing with the UK’s contribution for EU liabilities outstanding at the end of 2020. Article 135(3) proposes that in each year from 2021 the EU will give the UK an overview of payments made for outstanding liabilities during the previous year and the UK’s contribution.
Article 135(4) proposes that in each year from 2021 the EU shall send the UK a document on EU pensions that will include, amongst other things:
- the remaining liabilities for EU staff divided into tranches of 5 years on the basis of their age
- the remaining liabilities linked to retirement benefits and those linked to the Joint Sickness Insurance Scheme
- the evolution of the remaining liability in terms of mortality, retirement dates etc
- a detailed calculation of the UK’s payments made in the previous year and expected payments for the current year
Article 135(5) sets out how the liabilities for pensions and other employee benefits may be established. Different methods are suggested for MEPs and EU high-level public office holders, and EU staff.
Article 136 puts forward a possible approach for dealing with contingent liabilities relating to loans for financial assistance, financial operations managed by the EIB (such as the European Fund for Strategic Investment) and the European Fund for Sustainable Development.
Article 136(1) provides that on 31 July 2019 the UK will be given a report providing, for each type of instrument:
- financial liabilities arising from those financial operations on the date when the WA comes into force
- any provisions held to cover the financial liabilities, on the date when the WA comes into force
Article 136(4) provides that from 2021 the UK will receive information annually from the EU on the financial operations of each instrument, including:
- the liabilities arising in the previous year and payments made
- payments made in the previous year
- the UK’s current provisioning and provisioning rate
- reimbursements made to the UK in the previous year
Article 136 also sets out an approach for instruments that require provisioning from the EU Budget. This includes the process for returning the UK’s share as the need for provisioning declines.
Article 137 sets out an approach for dealing with contingent liabilities arising from financial instruments of EU programmes.
Article 137(1) states that on 31 July 2019, the EU will provide the UK with details of:
- the liabilities arising from the instruments before the date of the WA entering into force
- payments made by the EU for the instrument and the amount committed and not yet paid at that date
Article 137(2) provides that from 2021 the UK will receive information annually from the EU on the financial operations of each instrument, including:
- financial liabilities arising from the operations decided before the date the WA enters into force
- payments made related to the financial operations
- amounts paid back to the EU and returns on resources of the financial instruments
- provisions not disbursed and received by the EU
Article 137(4) suggests a way for dealing with liabilities, payments etc that cannot be directly attributed to a particular financial operation because of overlaps.
Article 140 proposes that each year the EU shall let the UK know of any payments arising from legal proceedings and the UK’s share of any subsequent recoveries.
Payments after 2020
Article 141 proposes practicalities for payments between the UK and EU after 2020. The Joint Report said only that these issues would be agreed during the second phase of Brexit negotiations.
Article 141 proposes that after 31 December 2020, transactions between the EU and UK arising from the items agreed in the financial settlement shall have a reference date of 30 June and 31 October each year. Payments with a reference date of 30 June will be made in four equal monthly instalments. Payments with a reference date of 31 October will be made in eight equal monthly instalments.
The financial settlement agreement is underpinned by the assumption that the UK will cease to be bound by the EU’s budgetary instruments by the end of 2020. As the draft WA does not make explicit the possibility of an extension of the transitional arrangement beyond 31 December 2020 (the end of the EU’s current long-term budget or multiannual financial framework ), it equally does not make provision for any additional financial obligations on the UK under the next long-term budget from 2021 onwards if the transition were to stretch into the EU’s next budgetary cycle. The Government has not ruled out that such liabilities might arise but said they would be subject to negotiation.
European Investment Bank:
Article 143 proposes an approach for decreasing the UK’s share of callable capital (uncalled subscribed capital) in the EIB. Article 143(6) suggests how any triggered liabilities will be dealt with.
Article 143(4) confirms the approach in the joint report for repaying the UK’s paid-in capital: eleven instalments of €300 million and a final instalment of €195.9 million.
European Development Fund
The Joint Report agreed that the UK would continue to participate in the European Development Fund (EDF), which is the EU’s main instrument for providing development aid overseas. The UK will honour its commitments to all unclosed funds. The current EDF will run from 2014 to 2020. Article 145(2) states that the UK may participate, as an observer, without voting rights, in the EDF Committee and the Investment Facility Committee.
Article 145(4) provides that as the EDF Investment Facility matures, the UK will be reimbursed using the same method as for financial instruments arising from EU programmes. Article 146 sets out that funding will not be re-used and the UK’s share will be reimbursed in cases where funding has not yet been committed to projects in previous EDFs and where money has been decommitted in the current EDF.
In the joint report, the UK agreed to honour the commitments it has made on the Facility for Refugees in Turkey and the EU Emergency Trust Funds. Article 148 stipulates that this commitment extends to any future EU Emergency Trust Fund created before the WA comes into force. As the Joint Report suggested, the UK’s obligations to the schemes will remain the same as those of the Member States.
Article 148(2) allows the UK to participate, as a third country, in bodies related to the Facility for Refugees in Turkey.
Under Article 149, during the transition period, the UK will continue to contribute to the funding of several defence-related agencies, including the European Defence Agency (EDA), and any CSDP operations. That funding will continue on the same basis as at present. During the transition, the UK will no longer have its current veto over the annual budget of the EDA.
Article 150 states that beyond 31 December 2020 the UK will be required to pay (by June 2021) its share of the pension liabilities for personnel of the EDA and other defence-related agencies, assuming that it has not already done so by the end of the transition period.
Article 138 provides that the EU will make five payments to the UK for its share of the liquidated net assets of the European Coal and Steel Community on 31 December 2020. Five equal payments will be made on 30 June of each year starting on 30 June 2021.
Article 139 proposes a similar arrangement for the European Investment Fund (EIF): the UK will receive five equal payments for its share of the EU’s paid-in capital of the EIF. The payments will be made on 30 June of each year starting on 30 June 2021.