During the last few months, it has gradually become apparent that the budget deal negotiated by the government in Brussels in December 2005, covering the way the EU is to be financed until 2013, is going to cost the UK far more than was announced at the time. The rebate negotiated by Baroness Thatcher at Fontainebleau in 1984 benefited Britain, effectively at the expense of every other Member State. The British government, chairing the Summit in December 2005, was under huge pressure to agree concessions to secure agreement on the budget. The only sensible way of doing this, by reform of the Common Agricultural Policy, had been ruled out as a result of a deal already stitched up by the French and Germans. Reductions in the rebate remained on the table as the only feasible way of closing the budget gap. The negotiations stretched on into the night, inevitably with increasing lack of clarity. It is easy to see how, in these circumstances, those concerned with protecting our interests lost track of the details. They knew, however, that the cost of the agreement eventually reached had been very high. The initial announcements after the Brussels meeting acknowledged that the agreement which had been reached had been extremely expensive to the UK. Months passed, nevertheless, before the full scale of the costs involved began to emerge.
The initial announcements made after the Brussels summit meeting disclosed that Britain had conceded reductions in the rebate which would increase the projected British net contributions to the EU budget between 2007 and 2013 on a sliding scale, from £4.7bn in 2007 to between £6.0bn and £6.8bn a year by 2011 to 2013. Thus, while the additional costs during the next year or two would be comparatively small, they would grow by an additional £2bn a year by 2013, net of our remaining rebate. These extra costs were, of course, against a background of very significant net contributions in any event. For recent years, Treasury figures, with an official estimate for 2006, show that the UK’s gross and net contributions to the EU budget have been as follows:
|2006 – est||£12,824m||£5,188m||£3,338m||£4,298m|
In total, the net budgetary cost to the UK of its EU Membership was going to increase to about £12bn a year by 2013. Furthermore, as Britain’s net contribution in 2013 was inevitably going to be the starting point for any future budget negotiations, the UK was likely to be in a very weak position during the run up to the next round of budget negotiations as 2013 approached. This is true not least because the terms on which Britain joined the EU in the first place in the 1970s were so unfavourable that a rebate – albeit on a reduced scale – will still be in place in 2013, making us exceptionally vulnerable to further attack.
Since the beginning of 2006, it has become apparent that the situation is substantially worse than had originally been portrayed. The first important indication that this was the case was revealed in the 2005 Office of National Statistics Pink Book, this being the publication produced annually covering all Britain’s international financial transactions. It contained two tables covering Britain’s contributions to the EU budget, one showing much larger net figures than the other. Careful analysis showed that the one (Table 9.9) detailing the UK’s contributions to the UK budget – the figures which are normally quoted by everyone as the net budget cost to the UK of our EU membership – excluded a large volume of payments to the EU which were paid to other EU institutions. These were, however, included in another table (Table 9.2) which detailed all the UK’s international financial transactions and which could therefore only balance if all payments were included. The total difference over the five year period between the start of 2000 and the end of 2004 was £9.1bn. The main reason for this discrepancy is that a substantial proportion of Britain’s Third World Aid contributions – about a quarter - each year are channelled through the EU but are not counted as budget contributions. This might not be a crucial matter if the sums paid were well used but sadly this is not the case. This is partly because much EU aid does not go to the most deserving countries. It is also because the EU is staggeringly inefficient at getting aid money paid out. Aid agencies report that in 2002, only 17% of the sums available were distributed rising to 28% in 2003 and still no more than 76% in 2004.
Concerning only the basic EU budget, however, it has now become clear that substantial additional payments are going to have to be made by Britain to the EU. Dalia Grybauskalte, the EU Budget Commissioner, was reported in the Monday, 17th April 2006 edition of the Daily Telegraph as saying that the scale of the EU budget requirement over the next seven years had been underestimated by £24bn, requiring additional funding from Member States a significant proportion of which Britain, as a major paymaster, was going to be required to provide. Over the seven years to 2013 these included €22.7bn in a special aid budget to former European colonies; €7bn for an EU Solidarity Fund to help with major disasters such as floods; €1.5bn for another Emergency Aid Reserve; up to €1.4bn for a “Flexibility Instrument” to be used “to redirect surpluses from other budgets to special areas of need”; and finally a €3.5bn Globalisation Adjustment Fund to compensate workers who lose their jobs as a result of international competition. Leaving aside the question of whether the EU can be trusted to administer any of these funds honestly and efficiently, what is immediately apparent is that Britain, though liable to pay in a heavy proportion of the extra money required, is unlikely to be a recipient of more than a tiny fraction of the expenditure which these extra budget requirements entail. As a result, the net cost to the UK of this budget increase is estimated to be another £2bn in total between 2007 and 2013.
The total sums of money that Britain is likely to have to pay to the EU, net of receipts, over the period between the start of 2007 and the end of 2013 is thus much higher than we were told it would be. The government announcements after the December 2005 Brussels Summit indicated that our total net contribution over this period would be about £40bn. As we have seen, this sum has already risen by £2bn as a result of further budget increases. If the Aid Budget channelled through the EU is included – most of it either not spent at all and accumulating in EU funds or not directed to what we consider anything like top priorities – roughly another £10bn needs to be added to the total. Government figures still show substantial further so far unaccounted for sums being paid to EU Institutions, so the total figure may well be even higher than this – possibly as high as £70bn if upward trends in expenditure continue, with Britain paying an ever increasing share of them. This is a truly massive sum of money, to be paid out in foreign exchange at a time when Britain’s balance of payments is already looking problematic. It is a huge deadweight drain on public expenditure as the government’s finances are evidently becoming increasingly stretched. In return, the British taxpayer and the public at large – because these are net and not gross payments - receive absolutely no net benefit whatsoever from them.
One might have thought that a massive increase in payments on this scale would have produced a huge outcry. £12bn a year, the level at which our net payments to the EU budget alone are likely to reach by 2010 is, after all, twenty times the size of the total National Health Service deficit about which there has been so much recent hand wringing. £12bn a year is also the sum raised by 10p on the standard rate of tax paid by every tax-payer in the country or enough money to build 60,000 new units of social housing a year at £200,000 each. Why has there not been far more protest at the huge scale of our net contributions to the EU? Surely, the reason is that there is no major party in Britain which, at present, is in a position to mount serious criticism of our massive contributions to the EU budget without opening up the issue as to whether the whole question of our continuing membership is worth while. Since there is not the slightest prospect of the other EU Member States agreeing to any radical changes to the EU budget as long as Britain remains in the EU, the realistic prospect of our departure is the only l ever which is likely to produce a change. With all three major parties presently committed to our continued membership, no such threat is credible. We are therefore stuck with the status quo
Britain’s terms of membership in the EU are so manifestly to our disadvantage, however, that it is by no means inconceivable that public opinion will do what political leadership in Britain has failed to accomplish. This is so not least because the net costs of membership to the EU budget and its other institutions, high as they may be, are far from being the only burdens to Britain that the EU brings in train. The cost of the Common Agricultural Policy’s protectionism to the UK is estimated by independent organisations such as the OECD to be about £15bn per annum. There is now no prospect of radical reform of the CAP, with all its hugely damaging implications for the Third World until 2013 at the earliest. Excessive regulation, largely of EU origin, costs another £20bn a year. The flow of regulations shows no sign of abating, with cumulatively more costly implications for our economy. On top of these static costs of membership, the reduction in our economic growth rate as a result of our being in the EU may well be another 0.5% per annum, cumulating up year after year. There may be no major political party which is willing to question whether all this is worth the candle at the moment, but it seems hard to believe that a stronger and stronger tide of popular opinion raising radical questions about our relationship with the EU will lack a response for ever. The political class in Britain, as across the whole of the continent of Europe, may be well out of touch with public opinion on the way the EU is going, but sooner or later the dam will break. The hugely expensive and highly visible costs of membership from our net contributions to the budget and the other payments to EU institutions may well be one of the triggers for this change of heart.
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