Brexit: UK must keep paying into EU budget if its banks want to trade in Europe, Germany to demand

The UK will be asked to make substantial indefinite contributions to the EU budget after Brexit in exchange for British banks having access to Europe’s financial markets, under plans being considered in Brussels.

German government officials told the Bloomberg news agency that a trade deal with the UK could only include financial services if the UK makes payments to Brussels and continues to follow EU law.

The stance risks enraging Conservative Brexiteers, including Foreign Secretary Boris Johnson, who have made the end of payments to the EU budget after Brexit a red-line – but insisted the City would still be able to prosper once Britain has left.

Any payments would be on top of the £39bn divorce bill agreement by Theresa May, a figure that only covers existing British liabilities.

Earlier this week Michel Barnier, the European Commission’s chief negotiator, said in a dinner speech that a free trade agreement “may include provisions on regulatory cooperation” for financial services in line with those between the EU and Japan.

But he re-stated that with Britain leaving, its “financial service providers can no longer enjoy the benefits of a passport to the single market nor those of a system of generalised equivalence of standards”.

Over 5,400 British firms rely on passporting rights to bring in £9bn in revenue every year to Britain. The British Bankers’ Association (BBA) has said the loss of passporting would be “disruptive, costly and time-consuming”.

The demand from German officials comes as the EU announces a massive £11.5bn shortfall in its revenue from existing sources, “because of Brexit”.

“We have two main problems – we have a gap on the revenue side, and a gap on the expenditure side,” Günther Oettinger‏, the commissioner for the EU’s budget, told reporters in Brussels on Wednesday.

“The revenue gap is because of Brexit: following a transition phase, we will have a situation where the UK, a large country and net contributor, are leaving the EU.”

The fact the push for the UK to keep paying is coming from Germany is unsurprising, given that the burden of making up any shortfall would fall disproportionately on the large, wealthy member state.

The EU’s current annual budget is around €105 billion a year, or £92.8 billion. The largest gross contributors ahead of the UK are Germany, France, and Italy, who contribute around 21 per cent, 16 per cent, and 14 per cent respectively. The UK contributes 13 per cent. The UK had the second highest net contribution, however, behind Germany. Only nine of the 28 member states are net contributors to the redistributive budget.

On Monday Jean-Claude Juncker, the European Commission president, said the Commission’s “working hypothesis” would be that “our British friends will be leaving us” and that future spending had to be planned accordingly.