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Briefings

The EU budget

in | by Hugo Dixon

One complaint about the EU is its budget. Eurosceptics think it spends too much money. There is some truth in this criticism, but it is overdone. The EU’s budget for the seven years to 2020 is €1,083 billion (£790 billion at January exchange rates). While that’s a lot of money in absolute terms, it amounts to 1% of the EU’s GDP. To put that in context, the UK’s own national budget is 40% of GDP.

Still, 1% of GDP is 1% of GDP. And we should never waste money – especially at a time when we have a large budget deficit at home. It was, therefore, important that David Cameron along with allies such as Germany’s Angela Merkel managed in early 2013 to secure an agreement to cut the EU budget for the following seven years by 3.5% in real terms compared to the previous seven years. A smaller budget will force the EU to focus on priorities and cut waste. Cameron’s success is another example of how Britain can often achieve its objectives if it builds alliances.

But will even this reduced budget be well spent? The frank answer is “no”. The biggest slice, 39%, will be spent on agriculture and rural communities – policies which fall into the “ugly” camp. Another 34% will be spent on regional policies, which fall into the “bad” camp. These two big policies account for 73% of the EU’s spending. Still, even this is an improvement on the previous seven-year period, when they accounted for 78% of spending. So Cameron’s budget deal didn’t just cut overall spending; it whittled down the proportion of bad spending.

Everything else is chicken-feed by comparison – some of it good (such as research grants), some of it bad (such as the expense of shifting the European Parliament backwards and forwards between Strasbourg and Brussels). Again, that doesn’t mean we shouldn’t improve how the rest of the money is spent – for example, by bearing down on the cost of bureaucracy. But let’s get things in proportion. The EU spends 6% of its budget on administration. Reforming the CAP and regional policy further are the priorities.

What about the UK’s contribution? This has been a running sore virtually from the moment that we joined the EEC in 1973 and discovered that we were paying Brussels more money than we were receiving back – despite the fact that we were then one of the poorer nations. The main reason for this was the Common Agricultural Policy. We didn’t receive nearly as much money from this slush fund as, say, France because agriculture is a less important part of our economy. Because of various quirks of history, we also get less money per acre than most other countries.

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Margaret Thatcher fought a bitter and ultimately successful battle to even things out when she was prime minister. She secured a rebate on part of our contribution to the budget in 1984. Tony Blair gave away some of this rebate in 2005 in the hope that this would lead to further reform of the CAP. It didn’t. But we still hung onto most of our rebate.

 

Graph

This is what the numbers look like for 2015. We made a “gross contribution” of £17.8 billion. After a rebate of £4.9 billion, our contribution was £12.9 billion. Of this, £4.4 billion is to be recycled back to the UK via the government. The money doesn’t stay with the government but, instead, goes mostly to our farmers and to development projects in poor regions such as Cornwall and west Wales. If you subtract this money, our “net” contribution will be £8.5 billion.

But even using this figure would be misleading, if it was intended to suggest Britain would save that much by leaving the EU. The EU also gives money directly to the private sector – in particular for research. In 2013, the last date for which the government has published figures, this amounted to £1.4 billion. We are also committed to spend 0.7% of our national income on official aid for developing countries. When we calculate our total spending, we include our share of EU aid (£816 million in 2014).

If we left the EU and maintained our support for agriculture, the regions, science and developing countries, we would only save around £6.3 billion.

Again it is worth putting this in context. That’s around a third of a percent of our GDP and less than 1% of our own £760 billion of public spending – or under £100 per person.

Britain is now one of the EU’s richer nations. Our GDP per head was 27% above the EU average in 2014. That made us richer than France but slightly poorer than Germany. One reason we have shot up the rankings is because the club has been expanded over the past 40 years to include poorer countries in southern Europe (such as Greece and Portugal) and in Eastern Europe (such as Poland and Hungary). These poorer countries are net beneficiaries of the EU budget.

We were very keen on this expansion – and rightly so. Thatcher, for example, saw that we could draw the former Warsaw Pact countries out of Russia’s sphere of influence and reinforce their transition to democracy if we invited them into the EU.

Our average net contribution per head was 28% less than what Germany paid from 2012 to 2014, and 11% more than what France paid.. We are still paying a bit more than we should compared to France and it would be good to cut the overall budget further. But our share of total expenditure is broadly fair.

This is an excerpt from “The In/Out Question: Why Britain should stay in the EU and fight to make it better” by Hugo Dixon. 

Factchecking by Sam Ashworth-Hayes

We have fixed a typo. The figure of £4.4 billion was given for the UK’s rebate; that is the value of our public sector receipts. The graph and calculations used the correct figure of £4.9 billion, and the article has been updated to correct this.