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Brexit bill swells on pensions as European Parliament draws red lines

Efforts to unblock the Brexit stalemate suffered two setbacks on Wednesday as data showed swelling European pension costs would add to Britain's exit bill and the veto-wielding European Parliament dug its heels in on what kind of deal it would accept.

As U.K. and European Union officials haggle over the size of Britain's divorce settlement, documents show the EU's liabilities grew by almost 4% in 2016, with the cost of pensions for EU officials rising more than 5%. Higher pension costs — already a controversial part of the bill — will increase what the EU thinks the U.K. should pay, and risk injecting additional tension into already fraught talks.

Prime Minister Theresa May's efforts last week to break the deadlock with an offer on the bill and some clarity on the transition arrangements she wants after the split have failed to bridge the chasm between the two sides. The European Parliament, which has a veto on the final agreement, is set to erect new barriers to an accord next week with a resolution that amounts to a direct contradiction of the U.K. stance.

The assembly's resolution, according to a draft summary obtained by Bloomberg, will make clear that the European Court of Justice must have jurisdiction in the U.K. during the transition period, rebuffing Brexit Secretary David Davis' claim over the weekend that the court's jurisdiction would end. The "transition can only be envisaged under the full jurisdiction of the European Court of Justice," the EU Parliament will say, according to the document.

It also makes clear that the free movement of people must continue during the interim period after Brexit. The U.K. wants to register EU citizens coming into the U.K. after 2019, though it's not going to impose restrictions straight away.

With the fourth round of talks underway in Brussels — and the breakthrough that's needed to move on to trade talks elusive — negotiators are discussing the Irish border, the rights of EU citizens and crucially, the divorce bill. Both sides were hoping for progress after Ms. May conceded last week that the U.K. would pay into the budget for two years after it leaves and honor its obligations more broadly.

As Mr. Davis vows to go line by line through the EU's demands, budget documents obtained by Bloomberg showed European pension liabilities rose 5% in 2016 to €67.2 billion ($80.2 billion) — adding to the costs that the EU says the U.K. is on the hook for. Pensions were already a thorny issue and Mr. Davis said on Sunday their inclusion in the exit bill was "debatable to say the least." Rising obligations risk irking the pro-Brexit parts of the government, who think the U.K. should pay as little as possible, or nothing, when it leaves.