UK to leave 'EU €20 billion short' if deal not right

'Britain will not fulfil May’s offer to cover the UK’s share of the EU budget through 2020 without a broader Brexit agreement'

Britain's Prime Minister Theresa May at the Conservative Party's conference in Manchester. Hannah McKay/Reuters

The UK will leave a €20 billion (Dh86bn) hole in the European Union’s budget unless the bloc agrees to give Theresa May the sweeping Brexit trade deal she wants, according to senior British officials.

Britain will not fulfil Mrs May’s offer to cover the UK’s share of the EU budget through 2020 without a broader Brexit deal, said the officials, speaking on condition of anonymity. The UK also has not accepted that it is liable for a share of the pensions of EU staff, they said.

The comments from officials in Mrs May’s administration help clarify the premier’s intentions, which she laid out last month in a speech in Florence. In an attempt to unblock stalled talks, Mrs May said the UK would honour its financial obligations and keep paying into the EU budget. “I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave,” she said.

A spokesperson for the Brexit department said the financial settlement should be “in accordance with law and in the spirit of the UK’s continuing partnership with the EU”.

The thorniest element of the negotiations is the financial settlement, or how much money the UK will pay towards the EU’s ongoing liabilities when it quits the club of 28 countries in March 2019. Talks ended acrimoniously over the issue in August, but Mrs May seemed to have spurred progress with her speech in Florence.

Even as she struggled to keep her divided Cabinet onside, Mrs May proposed a transition phase lasting around two years after Brexit day in 2019. In this period, aimed at helping businesses adjust, Britain would continue to pay its full share of the EU’s budget, she said.

On Monday, the chancellor of the exchequer Philip Hammond qualified Mrs May’s offer on the transition, during which the UK would pay into the EU budget. He said at the Conservative party conference in Manchester, England, that transition was a “wasting asset,” suggesting that the longer it takes to secure, the less it’s worth to the UK. “Our European interlocutors know that,” he said.

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The prime minister’s Florence speech - and in particular the hint that she would pay up - were welcomed in EU capitals. The bloc’s chief negotiator, Michel Barnier, hailed the speech last week for creating the “new dynamic’’ that he saw in the latest round of talks.

However, Mr Barnier said that it was still not clear where the UK saw its liabilities beyond the two-year transition period, and warned that talks on the future trade relationship could still be “months” away. The EU says talks cannot move on to future ties until there is an outline agreement on the bill.

Speaking anonymously, the two British officials said the UK recognised that pensions of EU staff are an issue but primarily because they are a liability for the EU. The question is still open whether the UK will have any responsibility for covering the cost of pensions for EU staff after it leaves the bloc, they said.

Both sides know they will not reach quick agreement on a figure for the Brexit bill, but the British officials insisted there would be no agreement on the money at all without the trade accord that Mrs May wants.

Last week, documents showed the EU’s liabilities grew by almost 4 per cent in 2016, with the cost of pensions for EU officials and policymakers rising more than 5 per cent.