Britain is not under any legal obligation to pay cash to the European Union after Brexit, a cross party committee of peers has found.
The European Commission has threatened to force the UK to make payments worth £50billion over four years after leaving as part of a “hefty” exit bill.
But House of Lords EU Financial Affairs Sub-Committee said in a report published today that “under international law the UK will not be legally obliged to contribute to the EU budget if an agreement is not reached at the end of Article 50 negotiations”.
The report is a boost for Theresa May, the Prime Minister, who has been criticised for saying that she is prepared to walk away from the EU with no trade deal if talks did not progress satisfactorily.
The Article 50 process envisages a withdrawal agreement being reached within two years.
The report was published based on legal advice from senior lawyers including Paul Hardy, the EU legal adviser to the House of Lords, who spent four years as a legal and policy adviser to the European Commission.
It said: “While the legal advice we have received differed, the stronger argument suggests that the UK will not be strictly obliged, as a matter of law, to render any payments at all after leaving.”
It added that Article 50 "allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget, unless a withdrawal agreement is concluded which resolves this issue.
“EU Member States may seek to bring a case against the UK for the payments of outstanding debts under principles of public international law, such as acquired rights, but international law is slow to litigate and hard to enforce.”
But the peers warned that failure to reach an agreement on financial terms would undermine the Government's aim of securing continued favourable to access to EU markets.
They said: “Although there are competing interpretations, we conclude that if agreement is not reached, all EU law – including provisions concerning ongoing financial contributions and machinery for adjudication – will cease to apply, and the UK would be subject to no enforceable obligation to make any financial contribution at all.”
The committee's Liberal Democrat chairman Baroness Falkner of Margravine said: "Even though we consider that the UK will not be legally obliged to pay into the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations.
"The Government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations."
“This would be undesirable for the remaining member states, who would have to decide how to plug the hole in the budget created by the UK's exit without any kind of transition.
“It would also damage the prospects of reaching friendly agreement on other issues. Nonetheless, the ultimate possibility of the UK walking away from negotiations without incurring financial commitments provides an important context.”
But Lord Lawson of Blaby, the former Tory Chancellor, said he welcomed “this definitive answer to the spurious ransom demands of some prominent EU apparatchiks”.
The former leader of the Vote Leave campaign added the report underlines the fact that a benefit from Brexit is “that we will no longer have to pay our net annual membership fee of getting on for £10,000 million a year – and rising with each year that passes.”
Lord Lamont, another Eurosceptic former Chancellor, added: “I have always thought the question of any payments by the UK after Brexit was a political issue not a legal one.”
Steve Baker, a leading Eurosceptic Tory MP, added: “I am delighted the Lords are playing their part in recalibrating the EU’s speculative and unjustified demands.
“Of course after we leave we are obliged to pay nothing and their lordships are right to set out the legal position.”
Jean Claude Juncker, the EU President, warned the UK would face a “very hefty” Brexit divorce bill.
The EU wants Britain to be paying as much as £50billion into EU projects for four years after Brexit, with final payments continuing up until the end of 2023.