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

Talks to allow UK companies to play a greater part in the EU’s €150bn (£130bn) defence loans scheme have broken down after a dispute over money.

The two sides had been at loggerheads over a fee to allow British defence firms to access an enhanced share of loans issued under the pact.

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

The negotiations had been taking place against a Sunday deadline for EU countries to make initial bids for the loans, expected to be issued next year.

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

The UK had accepted it should pay a fee, whilst insisting it would not sign up to an agreement at any price.

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

“Negotiations were carried out 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 added.

The European Commission suggested that talks could resume at a later date, noting that an agreement could not be found “at this time”.

“Throughout these intense negotiations, our negotiators have engaged constructively and in good faith with the UK to get a deal over the line,” a spokesman added.

The Security Action for Europe (SAFE) scheme, announced in March, is part of an EU-wide effort to rearm after Russia’s full-scale invasion of Ukraine.

It will see the European Commission borrow up to €150bn (£130bn) to fund long-duration loans to EU countries, in a bid to encourage them to buy ammunition, artillery, and military drones together.

A defence pact agreed with the EU in May paved the way for UK-based defence companies to contribute to projects that receive funding from the scheme.

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

The UK had wanted an enhanced deal in place before Sunday, the deadline for EU countries to apply to take part in the first funding round.

Nineteen of the 27 EU countries have so far applied for loans, which are expected to be issued early next year.

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

ADS, the lobby group for the British defence industry, said the breakdown in talks would prove a “frustrating setback” for UK-based firms.

Kevin Craven, the group’s chief executive, added: “We remain hopeful that something can be salvaged as we move into next year”.

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

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

Talks on a further deal on electricity trading could begin in the new year, after EU countries agreed to draw up their instructions for talks by the end of next month.

Canada is also in talks to allow its companies to take part in the scheme, with the Commission saying it hoped to find an agreement before Sunday.