Brexit Bulletin: Riddle of the 'Brexit dividend'

James Rothwell
Britain's Prime Minister Theresa May makes a speech at the Royal Free Hospital in north London

Theresa May has unveiled a bold new plan to inject £20bn into the NHS by 2023, funded by tax hikes and a so-called “Brexit dividend.”

This dividend is the sum of money we currently send each year to Brussels in EU budget payments, which according to the famous red bus pledge tallies at around £350m per week, or £18bn per year.

The government says once we leave the EU it will be free to siphon that money into more useful causes, such as NHS spending.

However, while it is not contested that the UK would stop sending billions to Brussels each year after a clean Brexit, the full picture is more complicated.

Firstly, Britain is one of the few EU member states to have a budget rebate, which was negotiated by Margaret Thatcher in 1985.

Thanks to the Iron Lady, Britain gets £4bn of its money back each year. And according to government figures, the UK’s budget payment after the rebate has been applied is only £13bn per year.

That works out to £250m being sent to the EU each week, rather than £350m.

Boris Johnson standing in front of the Vote Leave bus

The UK also wants to retain access to several EU programmes, such as Erasmus and Horizon 2020, and replace certain EU projects with a domestic equivalent. For example, it wants to set up a Shared Prosperity Fund which will cost about £1bn per year.

Let’s estimate those post-Brexit costs conservatively at £4bn per year - which is £76m per year.

That reduces the Brexit dividend to £174m per week, which is still a handsome sum of money to play with.

However, the government also says it will replace EU farming subsidies with UK subsidies at an estimated cost of £3bn per year, or £57m per week.

That whittles the dividend down again, to £117m per week.

We must also factor in the UK agreeing to a £39bn Brexit divorce bill. We will be paying that off for several decades, but the biggest installment is due in 2021 and expected to cost £6bn (or £115m per week).

Then we are expected to pay £5bn in 2022 and £3bn in 2023. By my calculation, this leaves us with a Brexit dividend of only £2m per week in 2021, £21m per week in 2022 and £89m per week in 2023, at which point the Brexit bill payments fall substantially.

Remember: Mrs May says she will raise £20bn extra cash for the NHS by 2023.

In the end, the government ends up with a small Brexit dividend that can provide only a fraction of the sum pledged by Mrs May.

The rest, as reported by my colleague Ed Malnick, will likely be picked up via stealthy tax increases.

And this is all assuming there is no hit whatsoever to public finances for the first few years after Brexit. The Institute for Fiscal Studies believes there will be a hit, to the tune of £15bn per year. That would wipe out the Brexit dividend altogether.

Football fun at UK's Brussels HQ

To Brussels, where this week’s round of negotiations has gotten off to a slow start.

Neither side is particularly hopeful of a big breakthrough this week. Michel Barnier won't even be in Brussels - he heads to Dublin later this week with Jean-Claude Juncker, and then on to the Netherlands.

That means there will not be a finger-wagging press conference from Mr Barnier in the European Commission headquarters on Friday.

It also appears that David Davis doesn’t plan on being in town this week either.

But it’s not all doom and gloom.

My colleague James Crisp has learned that British diplomats will be settling down to watch England v Tunisia this evening in their Brussels office bar - which features a Number 10 Downing Street-style door.