What will be the impact of the Brexit divorce bill?

Thanks to the ‘breakthrough’ deal struck in early December last year by Prime Minister Theresa May with the EU, we now know that there will not be a ‘hard border’ with Ireland, that the rights of both EU citizens in the UK and UK citizens in the EU will be protected, and that the ‘divorce bill’ figure will be somewhere between £35 billion and £39 billion. 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.

Of course, no matter what figure had been announced, opinion was always going to be sharply divided. Those who were predicting a bill of around £55 billion are likely to be happy that the actual figure is lower; meanwhile, those who believe the UK shouldn’t be paying a penny will no doubt see the payment of tens of billions of pounds to the EU as an affront to the nation.

In real terms, however, what would paying up to £39 billion for Brexit 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, 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 £39 billion 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 with the divorce bill now apparently having been agreed by both sides, Britain will be able 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.

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