UK will be paying Brexit 'divorce bill' until 2064, says Treasury watchdog

Office for Budget Responsibility says it still lacks 'meaningful basis to predict the precise outcome of the current negotiations with the EU'

New official data indicates that Britain will be paying its Brexit divorce bill for 45 years after leaving the EU – until 2064.

It is the first time the UK’s fiscal watchdog has set out how Britain would pay the bill Brussels is demanding London pay to meet its liabilities.

The Treasury argued on Tuesday that ongoing payments are in the UK’s interests because they spread the financial burden, but they will likely anger Brexiteers who want a clean break from the EU.

It emerged during Philip Hammond’s Spring Statement, in which he also hailed improved borrowing data and a potential easing of austerity, albeit not until past 2019.

While the Chancellor highlighted slightly improved growth forecasts next year, over the broader period growth was largely flat, even falling from previous estimates once into the 2020s.

Mr Hammond’s officials had been at pains to lower expectations ahead of the statement, saying the Chancellor would hold fire on spending announcements until the autumn.

But with few announcements, focus shifted on to the new detail about the UK’s Brexit divorce bill.

The Office for Budget Responsibility said Britain’s bill would be a total of £16.4bn in 2019 and 2020, as it continued to pay into EU budgets “as if it had remained in the EU”.

After that, outstanding commitments would total £18.2bn between 2021 and 2028 – including around £7.5bn in 2021 alone.

Although annual payments would fall sharply from around £3bn in 2023, they would continue for a further four decades, with around £500m still owed in the final year.

The OBR put the cost of the financial settlement with Brussels at £37.1bn, in line with the figure quoted by Theresa May.

As well as pensions, there would also be costs for agriculture, for development projects in deprived areas of the EU, for the EU’s aid budget and for science and education programmes.

A Treasury spokesman said: “We want to pay our bills when they are due. If you think about your own finances, you don’t want to pay the bill before it’s due because we’d rather invest that money today.

“So we have an option to bring it forward if we choose that it is in our interest – but actually it is an important negotiating principle for the UK.”

In its verdict on the Spring Statement, the OBR said it still lacked a “meaningful basis to predict the precise outcome of the current negotiations with the EU”.

Despite the Chancellor’s claim of “substantial progress” in the negotiations, it was forced to make “broad-brush assumptions about the economy and public finances after the UK’s exit from the EU”.

The Chancellor however presented an upbeat assessment of forecasts for the economy and public finances describing himself as “positively Tigger-like”.

He even claimed that the country had reached “a turning point” with debt forecast to start falling next year.

If, in the autumn, the public finances continue to reflect the improvements that today’s report hints at, then…I would have capacity to enable further increases in public spending and investment in the years ahead

Chancellor Philip Hammond

Hinting that he would turn on the spending tap in the autumn’s Budget he pointed towards “light at the end of the tunnel” following years of austerity.

He told MPs: “If, in the autumn, the public finances continue to reflect the improvements that today’s report hints at, then … I would have capacity to enable further increases in public spending and investment in the years ahead while continuing to drive value for money to ensure that not a single penny of precious taxpayers’ money is wasted.”

A Treasury spokesman later said that the Chancellor was unlikely to use all of the £15.4bn headroom indicated by the OBR figures.

Priorities for any spare money would be to “get the deficit down, keep taxes low and – if there is still flexibility – he has indicated that he would be in a position to do more to support public services”, said the spokesman.

The OBR’s new slightly upgraded forecast for growth this year of 1.5 per cent, still leaves the UK growing less quickly than most other G7 economies, apart from Italy and Japan.

The body then predicted the UK economy would grow 1.3 per cent in 2019, 1.3 per cent in 2020, 1.4 per cent in 2021 and 1.5 per cent in 2022, slightly less than predicted in the final two years.

Public borrowing is forecast to fall from £45.2bn this year to £28.7bn in 2020-21 and £21.4bn by 2022-23.

Labour’ shadow Chancellor John McDonnell accused Mr Hammond of being “cut off from the real world” as he warned public sector workers have been “ignored again” by the Government.

He labelled Mr Hammond’s “complacency” as “astounding”, before sounding warnings over the state of the UK economy.

The Labour frontbencher said that improvements to the public finances announced by the OBR were “marginal” and denounced the Chancellor’s decision to hold back any spending increases to the autumn as “astounding”.

“Hasn’t he listened to the doctors and nurses, the teachers, the police officers, the carers and even his own councillors?” asked the Shadow Chancellor. “They are telling him they can’t wait for the next Budget. They’re telling him to act now.”

He added: “This isn’t a Government that’s preparing our country for the future. It’s a Government setting us up to fail.”