The truth about Britain's EU divorce bill and why we should pay it

The bill would pay for itself through the extra tax revenues the UK would gain through a free trade deal with the EU

Britain's divorce bill is a sticking point in the Brexit negotiations (AP)

“We won’t pay a penny!” scream the fundamentalists of Brexit whenever the subject of Britain’s divorce bill, on which the Brexit talks with the EU are currently floundering, comes up.

It doesn’t take much to put the pacemakers of their greying tribe on overtime. The mere sight of a blue and gold flag will usually do the trick.

But even the all too rare moderates start twittering about sailing off into the Atlantic to bump uglies with Iceland when favourite bogeyman Jean-Claude Juncker starts talking figures of £100bn or more.

Numbers of that size also create disquiet among the public and are grist to the tabloid headline writers' mill. It’s all too easy for the extremists to use them to buttress their case for a no deal, followed by the tearing up of worker protections and the scrapping of things like corporation tax that Brexiteer dreamers would like to see. Welcome to foggy Singapore!

Hardly anyone dares to make a positive case for payment. But what the hell, I’ll give it a shot.

To do that I first need to put another big number before you. It’s £71.4bn and it represents the total tax contribution of the financial services industry to the British exchequer in 2016 as calculated by PricewaterhouseCoopers for the City of London Corporation. A more up to date number is due in a couple of weeks.

It’s not the economic contribution - the people employed there earn a lot of money and put still more into UK plc through their spending. So that would be even bigger. No, what we are talking about here is just the tax.

To put that number in context, it represents 11.5 per cent of the UK exchequer.

Now, unlike the Brexit brigade, I’m going to do my best to be honest. Before I embarked on this piece, I asked the Corporation whether any work had been done on the impact of a no deal on that number.

The answer I got was no, because it’s simply too difficult to make a sensible estimate. There are too many variables. Some institutions would depart. Some would move parts of their operations. Some might keep most of them here.

All that tax would not simply go up in smoke about the time Whitehall is checking on the long-term forecasts for Reykjavik with the Met Office in a no deal scenario. It would be disingenuous to argue that it would. I would be no better than the worst Brexiteer bigot if I did.

The only thing we know is that there would be an impact, and that it would probably be quite considerable, to the extent that the NHS could forget about getting its £350m a week extra that the Leave campaign said would be available to it if we left during the EU referendum.

The impact would, obviously, be considerably less if the UK secures a sensible deal with the EU. Which brings us back around to the divorce bill.

At this point, I’ll hand you over to an old City friend of mine (despite being a critic of the Square Mile I have one or two), who is, incidentally, a Conservative.

“We need to pay. If its means we can secure free trade with the EU and protect those tax revenues, it’d be worth it,” was their view on the bill.

They’re entirely correct. The bill, whatever it ends up at, would be a single payment, albeit one that could be spread out over time.

If the City’s tax contribution were protected, it would effectively pay for itself, and perhaps within a fairly short period of time.

Not paying; storming off and having a childish tantrum because it’s a big number and Michel Barnier says we should do what everyone else does and pay what we owe? It would amount to a false economy. The UK would be cutting off its nose to spite its face, something the country is acquiring an unfortunate reputation for doing.

By the way, it wouldn’t be just the City’s tax bill that got damaged in a “no deal” scenario, which is why the business leaders Theresa May has been meeting on Monday are so exercised.

Those who say they and the rest of us “shouldn’t be afraid” of the UK crashing out, and falling back on WTO trading rules and tariffs, fail to mention that there is a reason most countries sign deals with the aim of avoiding them. If trading via WTO rules were such a good thing, then there would be no need for that.

Returning to the divorce bill, the other reason we should pay it is because we owe it. It is to cover the cost of programmes we agreed to fund, and salaries and pensions we agreed to pay. To settle our accounts, as a certain Alexander Boris de Pfeffel Johnson, better known as foreign secretary Boris, once said.

Unfortunately, acting in good faith, and living up to our responsibilities, will always be alien concepts in a Westminster in which he is considered a “big beast”.

However, as I’ve demonstrated, good faith doesn’t come into it. We should pay because it is in our economic and national interest to do so.