Talks over UK joining EU defence fund break down over entry fee

Talks to allow British companies to play a bigger role in the EU’s €150bn (£130bn) defense loan scheme have broken down after a row over the money.

There was an ongoing dispute between the two parties over fees for allowing British defense companies to access an increased share of the loans issued under the agreement.

The lack of agreement limits the total value of any weapons or parts that UK-based companies will be able to contribute to the projects.

The talks were taking place against a Sunday deadline for EU countries to make initial bids for the loan, which is expected to be issued next year.

The EU was reportedly demanding an entry fee worth billions of euros for UK companies to access a larger share of the loans, which would ultimately be underwritten by the European Commission.

The UK accepted that it should pay the tariffs, while insisting that it would not sign the agreement at any cost.

In a statement on Friday, Nick Thomas-Symonds, the minister responsible for EU relations, said it was “disappointing that we were not able to conclude discussions on British participation in the first round of bids”.

“The negotiations were conducted in good faith, but our position was always clear: we will only sign agreements that are in the national interest and provide value for money,” he said.

The European Commission suggested that negotiations could resume at a later date, noting that no agreement could be reached “at this time”.

A spokesperson said, “During these intense negotiations, our negotiators have engaged constructively and in good faith with the UK to reach an agreement.”

The Security Action for Europe (SAFE) plan, announced in March, is part of a broader EU effort following Russia’s full-scale invasion of Ukraine.

The European Commission will borrow up to €150bn (£130bn) to provide long-term loans to EU countries to encourage them to buy ammunition, artillery and military drones together.

A defense deal struck with the EU in May paved the way for UK-based defense companies to contribute to projects that receive funding from the scheme.

But without a separate, separate agreement, British companies contracted to supply parts will be limited to providing 35% of the total value of the finished product.

The UK wanted an improved deal before Sunday, which was the deadline for EU countries to apply to take part in the first funding round.

Nineteen of the EU’s 27 countries have so far applied for the loan, which is expected to be issued early next year.

Poland has been allocated the largest share of funding at €43.7bn, followed by Romania at €16.6bn, Hungary and France at €16.2bn each.

British defense industry lobby group ADS said failure in the talks would be a “disappointing blow” to UK-based companies.

Group chief executive Kevin Craven said: “We hope that something can be saved as we move into the next year”.

The failure of the talks comes amid ongoing talks for a broader “reset” in UK-EU relations in the wake of the summit in May.

As well as the defense loan deal, the UK is trying to negotiate other deals to reduce post-Brexit border checks on food products and to link the UK to the EU’s carbon trading regime.

Negotiations on another deal on electricity trade could begin in the new year, after EU countries agreed to prepare their own instructions for negotiations by the end of next month.

Canada is also in talks to allow its companies to participate in the scheme, with the commission saying it expects an agreement before Sunday.