UK's Brexit bill could be EUR25bn - or even less

Britain’s Brexit bill for separating from the European Union could be as low as €25bn, according to a respected European think tank, which puts the figure at around half of the bloc's €60bn initial claim.

A study from Breugel, an independent and non-doctrinal policy-focused think tank, calculated that if taking the UK's rebate along with its share of existing EU assets, Britain’s obligations were significantly less than the €60bn calculated by the European Commission.

The exit bill has been described as the single biggest obstacle to a smooth Brexit, though while the government has expressed its confidence that it will face down what it considers to be exaggerated demands, the 27 remaining member states are confident Britain will eventually pay as the alternative cost of a disorderly Brexit are much higher.

Breugel said €35.7bn was fairest and most likely figure for Britain’s net liabilities, with a range of estimates from a low of €25.4bn being up to a highest that was greater than the €60bn figure posited by European Commission President Jean-Claude Juncker.

The think tank based its calculations on the UK's €86.9bn gross exposure to EU debts and liabilities, €17.7bn share of EU assets and money owed, the €29bn of EU money due to be spent on UK institutions over the seven-year budgetary period ending in 2020, which Britain agreed to as a member. On top of this is the rebate the UK gets on its EU contributions, amounting to €4.6bn.

Breugel's Zsolt Darvas said the UK might even be able to argue its Brexit bill is even lower than €25.4bn if negotiators could argue that the UK was not responsible for any EU spending signed off on after it has left the union.

A recent report by the Centre for European Reform by Alex Barker stated that, ultimately, the political collision over the exit bill "could bring the Brexit talks to a sudden and premature end".

Barker's high and low estimate depend on whether the UK’s share is calculated as a share of the EU’s gross national income (15%), or on its typical contribution post-rebate (12%) and he estimated the net bill could amount to €40-60bn

In a note to clients on Wednesday, HSBC economists said, we know exactly which commitments would be subject to the rebate, so the number would not be calculated on such a simple basis.

Ultimately, it will likely be a matter of bargaining and politics, HSBC said.

"The UK could walk away, but it would surely jeopardise its position in future trade talks. On the other hand, some indication of willingness on the UK’s part would likely increase goodwill and allow trade talks to begin smoothly."

The main issue from the UK side may be less financial and more about domestic politics, as a €30bn fee paid over three years, say, would be a relatively small impact on the public finances.

"The bigger issue would be selling it to the public. People voted to leave on the hope of an extra £350m a week – not a multi-billion euro exit bill," economist Liz Martins wrote.

"Likewise, Mrs May will want to be able to show the voters a concrete change on the UK’s position on immigration."