Would extending the Brexit transition period cost £15 billion?

Note: Political events have moved on since we published this piece. This means it’s not an up-to-date reflection of the situation regarding the cost of an extended transition period. However, it still accurately reflects our assessment of the claim—based on information available to both us and the claimant at the time.

“We’ve got 39 billion that we’re going to send off to the EU. If we extend the transition period that’s an extra 15 billion, estimated.”

Andrea Jenkyns MP, 25 October 2018

£39 billion is the upper estimate of the amount that the UK may pay to the EU, following Brexit, to cover outstanding EU budget contributions and other financial commitments and liabilities. We’ve written about this “divorce bill” in detail here.

The claim that extending the Brexit transition period could cost an extra £15 billion a year on top of that is newer. It has been circulated by various newspapers and MPs in recent weeks, but the original source of the figure is unclear.

So we decided to speak to some experts to try and work out how realistic it is.

The short answer is that we don’t know how much we would have to pay if the transition period was extended: it would be dependent on negotiations, and the size of the EU’s next budget. However, based on what we do know, £15 billion a year seems a reasonable estimate for the time being. If transition were extended by only a few months and not a whole year (as has been mooted), the sum we owe would fall.

What does extending the transition period mean?

We are formally leaving the EU on 29 March 2019. But once we leave, the plan is for there to be a “transition period” during which we would have the same obligations as an EU member, but not be represented on EU bodies. The transition period is designed to give the UK and EU more time to negotiate a trade deal which will define our future relationship.

This proposed transition period (it hasn’t been formally signed off yet) would last until the end of 2020, giving the UK and EU 21 months to negotiate a future deal. Experts have suggested that this is "very unlikely" to be enough time to conclude all necessary talks.

Recently, the Prime Minister suggested that the transition period could be extended by “a matter of months”. This remains a proposal, and is not an official position committed to by the UK or EU.

Extending the transition period would almost certainly mean paying more to the EU

During the transition period, the UK will still be part of the EU’s structures (for example being part of the single market and customs union), and continue to contribute to the EU’s budget until the end of 2020. That’s when the current EU budget ends—these run in seven year cycles.

These contributions make up part of our “divorce bill” with the EU. The total bill is expected to be £35-39 billion, though that’s not been fully agreed yet. As well as outstanding budget contributions, this money also covers financial commitments and liabilities we have towards the EU up to the end of 2020 and beyond.

But what happens if the transition period is extended past 2020, as the Prime Minister suggested? Brexit specialists at the Institute for Government, an independent think tank, told us that it’s unlikely the EU would let us stay a part of its structures beyond 2020 without continuing to contribute to its overall budget. Recent statements from the EU suggest as much.

What exactly would extending the transition period cost?

There isn’t a clear figure, but £15 billion a year seems a reasonable estimate based on what we know at the moment. The best we can do for now is look at the UK’s existing budget contributions.

In 2017, the UK government paid just under £13 billion into the EU budget. In the previous three years, it paid between roughly £13 billion and £15 billion in cash terms. That doesn’t factor in what we get back in terms of EU spending on the UK though. Once we deduct this, the UK’s “net” contribution was just under £9 billion in 2017, and between roughly £10 billion and £11 billion in the three years before that.

But we also get a discount on these contributions, known as the “rebate”. This tends to be worth around £4-5 billion a year.

The EU has said we would lose our rebate if we ended up a part of the EU’s next budget—which is what would happen if we remained in transition after 2020. This is in line with an EU proposal to get rid of all the rebates it gives to its members—including Denmark and the Netherlands—over the course of the next budget. Even if affected member states resist the proposal, none are likely to fight the UK’s corner. The Institute for Government told us that, given this picture, it could be very difficult for the UK to hold onto its rebate if the transition period is extended beyond the end of 2020.

Without a rebate, our typical net annual contribution to the EU’s budget could be around £15 billion, assuming of course we remained in transition for a year. If it was only a few months, then the sum would be less.

A couple of factors could change that though

The main issue which could change this is the total size of the next EU budget, and therefore what the UK would have to pay in.

If we extended the transition period and remained in the EU past 2020, our contributions would have to be calculated against the EU’s new budget for 2021-27. We don’t yet know how big this will be: the EU has proposed that it will be bigger (even with the UK leaving), but a number of members are reportedly resistant to that idea. The Institute for Government told us that the UK’s budget contribution would probably rise or fall in line with the overall EU total.

The EU is, of course, planning its next budget without the UK as a part of it, so that could further complicate how our contributions will be calculated. Ultimately, the exact sum we owe would be finalised in negotiations between the UK and EU.