Brexit settlement could soar above top Treasury estimate of £39bn

British audit watchdog the NAO says that payments to the European Union can’t be accurately predicted now

The British government has budgeted for a final ‘divorce settlement’ from the EU of between £35-39 billion. Marko Djurica / Reuters

The British government could end up paying the European Union a final ‘divorce settlement’ more than the £35-39 billion that it has estimated so far, according to the UK’s National Audit Office (NAO).

In a report released on Friday, the NAO, an independent Parliamentary body which audits central a range of government departments and agencies, and other public bodies, states that while the estimate by the Treasury is a “reasonable calculation”, it is based on assumptions about future events which remain uncertain.

In a statement, the NAO said that “the total cost of the settlement cannot be defined until there is greater certainty around future events such as: the UK’s economic performance in 2019 and 2020; how much EU funding UK organisations will continue to receive after the UK leaves; the future cost of the EU pension liability; and potential changes to the exchange rate, as the UK will settle its payments in euros.”

Even small changes in the predictions made by the Treasury could result in the final sum being significantly different from the £4bn range, which is the sum the government is basing its financial position regarding Brexit negotiations on.

The NAO identified key areas where the numbers could be radically different:

- Payments to the EU annual budgets in 2019 and 2020, which will continue as the UK will still be treated as if it were a member state, will be based on the state of the UK’s economy. The predictions could be higher or lower than the actual figures. The contributions made in these two years will also define what share of EU liabilities the UK must subsequently pay.

- Payments into the EU pension scheme may last until at least 2064. While the British government could make a one-off payment, there could still be more money demanded of them by the EU.

- The UK has said it will honour its commitments to the EU’s overseas aid budget at a cost of £2.9 billion. But this figure has not been included in the Treasury estimates.

Amyas Morse, the head of the NAO, said that “we have reviewed the Treasury’s estimate of how much the UK will pay the EU under the draft withdrawal agreement. The estimate reflects a number of moving parts, so the range of costs in it could have been wider than £35 billion to £39 billion. But overall we think it is a reasonable estimate.

“As the vote on the draft withdrawal agreement approaches we expect that government will provide a substantial amount of material for Parliament to consider. We will support Parliament in this scrutiny by providing independent assurance.”