© FT Montage

The UK has for the first time explicitly acknowledged it has financial obligations to the EU after Brexit, a move that is likely to avert a full-scale clash over the exit bill in talks between the two sides next week.

In a written statement to parliament touching on a “financial settlement”, the British government recognised “that the UK has obligations to the EU . . . that will survive the UK’s withdrawal — and that these need to be resolved”.

The text, released by Joyce Anelay, a Brexit minister, was seen by Brussels as a potentially important development. EU diplomats say the wording “goes further” than prime minister Theresa May’s previous reference to Britain being willing to reach a “fair settlement” of unspecified obligations.

The UK concession was made as Tony Blair, the former prime minister, called on Mrs May to consider negotiating to stay within a Europe that was “itself prepared to reform and meet us halfway”.

“Reform is now on Europe’s agenda,” said Mr Blair in an article published on his own website. “European leaders, certainly from my discussions, are willing to consider changes to accommodate Britain, including around freedom of movement.”

Mr Blair urged Labour leader Jeremy Corbyn to soften the party’s stance on Brexit, saying that it should drop its insistence that Britain should leave the EU single market. He called on Labour to capture the centre ground but added: “I am not advocating a new party.”

As EU and UK negotiators prepared for a round of talks on Monday, Britain’s exit liabilities— estimated by the bloc to stand at up to €100bn gross — were proving one of the biggest flashpoints.

With Britain’s exit set for March 2019, negotiators on both sides feared a protracted stand-off over money would waste valuable time and delay the point at which the EU decides “sufficient progress” has been made to start trade talks.

Head to head: the Brexit negotiators

United Kingdom

FILE PHOTO: Britain's Secretary of State for Exiting the European Union David Davis speaks during a joint news conference with European Union's chief Brexit negotiator Michel Barnier (not pictured) ahead of Brexit talks in Brussels, Belgium August 28, 2017. REUTERS/Francois Lenoir/File Photo
© Reuters

David Davis

The 68-year-old political bruiser will be Britain’s principal negotiator in Brussels, but will leave detailed talks to senior civil servants.

He conveys a breezy confidence and insists Britain can walk away from a bad deal, but some in Brussels fear he does not understand the detail or the weakness of his position.

A former sugar industry executive and reservist in Britain’s elite SAS, he is viewed at Westminster as tough but possessing more than a streak of vanity.

He has earned Theresa May’s trust through the way he has quietly gone about preparations for Brexit and is sometimes talked about as a stopgap prime minister, should Mrs May be forced to stand down.

The EU

Michel Barnier, chief negotiator for the European Union (EU), gestures while speaking during a news conference following the third round of Brexit talks in Brussels, Belgium, on Thursday, Aug. 31, 2017. Barnier said Brexit talks are “far” from making the progress that’s needed to move on to trade talks, as three days of negotiations produced few results. Photographer: Dario Pignatelli/Bloomberg
© Bloomberg

Michel Barnier

Tall, silver-haired and with the stride of a politician with a calling, the 66-year-old has been a fixture of the Brussels scene for decades. His latest job is to spearhead the EU’s negotiating team and brief leaders on progress.

A former French foreign minister and two-time European commissioner, he oversaw the EU’s deluge of post-crisis financial regulation — and all the tensions with London that came with it. Like Mr Davis, he has never been lauded for his mastery of detail or humility. His strength is working the EU’s power centres, from capitals to the European Parliament.

Although London feared his obdurate side, diplomats have been impressed by his deft handling of a fraught Brexit file. Many reckon Mr Barnier has another job in his sights: European Commission president. 

Britain has not submitted a position paper on financial issues and Boris Johnson, the foreign secretary, said this week that the EU can “go whistle” if it insists on demanding “extortionate” sums.

In reply Michel Barnier, the EU’s chief negotiator, said: “I’m not hearing any whistling, just the clock ticking.” He warned that talks would stall unless Britain at least accepts the principle that it has legally binding financial commitments once it leaves.

“This [UK] statement goes further than before,” said one EU diplomat involved in the Brexit process. “That stops an electric shock next week. It would have been a real problem if we had made zero progress on the financial settlement.”

David Davis, the Brexit secretary, made no reference to financial issues in a press statement alongside the release of three position papers for the talks with the EU.

Baroness Anelay’s written statement to parliament, released on Thursday, said: “On the financial settlement, as set out in the prime minister’s [Article 50 letter] the government has been clear that we will work with the EU to determine a fair settlement of the UK’s rights and obligations as a departing member state, in accordance with the law and in the spirit of our continuing partnership.”

“The government recognises that the UK has obligations to the EU, and the EU obligations to the UK, that will survive the UK’s withdrawal — and that these need to be resolved,” she added.

Brexit: the six scenarios for Britain

1. No deal

The default scenario if there is no divorce agreement. The UK would no longer be bound by the EU treaties and there would be nothing to replace the thousands of international agreements that stem from them.

2. Divorce-only agreement

The UK would strike an Article 50 agreement with the EU on its departure from the bloc, but would leave the future relationship to be negotiated from the outside, with interim trade based on World Trade Organization rules.

3. Limited tariff-free deal

Britain strikes a limited free-trade agreement with the EU to maintain tariff-free trade in goods. The UK is free to agree deals with other countries, but there would be no guaranteed access to the EU market for the services sector.

4. Far-ranging trade deal

Britain would sign a bold and comprehensive trade deal with the EU covering most aspects of trade with the bloc. But the more comprehensive the deal, the more limitations on sovereignty the UK would have to accept.

5. Customs union

Agreeing a new customs union with the bloc would seek to smooth, as much as possible, trade at the UK-EU border. It would allow Britain to negotiate its own deals for services, and agriculture, and set many domestic regulations but external goods tariffs and goods trade deals would be run by the EU.

6. Single market

Were Britain to remain in the single market by retaining membership of the European Economic Area — either with a customs union agreement or without — it would ensure continued regulatory harmony with the EU and tariff-free trade.

The British side sees the statement as an effort to improve the tone of talks, rather than as a concession of substance. As described in the statement, Britain’s accepted obligations remain too ambiguous to quantify precisely.

The EU sees its strongest legal claim being the so-called reste à liquider, or RAL, the backlog of unpaid commitments made by the UK in annual EU budget rounds. If Britain accepted that, negotiators estimate it would amount to €32bn gross and €20bn net at the end of 2019. Long-term liabilities such as pensions would add a further €10bn, according to the EU.

Mr Barnier and Jean-Claude Juncker, the European Commission president, were alarmed when Mrs May argued at a dinner in late April that Britain had no legal obligation to settle financial matters when it left the union.

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