So what does the EU cost us?

 

 

The ‘Vote Leave’ battle bus for the 2016 EU referendum carriers a slogan reminding voters that “We send the EU £350 million a week”. ‘Remain’ campaigners say this isn’t so, citing much lower costs of EU membership. Who is right? And why the difference between the two camps’ figures?

Not surprisingly, there a long running argument between the ‘Remain’ and ‘Leave’ camps in the UK referendum on EU membership about how much it really costs us to be in the EU. Is it £350,000,000 (gross) a week, or ‘only’ £120,000,000 (net)? I decided to find out a bit more, and look more closely at the elements of the money we get back from the EU.

What’s the difference? An accountant speaks…

I’ve obtained figures for the annual UK contributions to the EU for the last few years, as shown in table 1. I then simply divided the figures by 52 to get the average weekly equivalent, shown as table 2.

2009 2010 2011 2012 2013 2014 2015 (estimated)
Annual £Millions £Millions £Millions £Millions £Millions £Millions £Millions
Gross Contributions 14,129 15,197 15,357 15,746 18,135 18,777 17,779
Less: UK Rebate -5,392 -3,047 -3,143 -3,110 -3,674 -4,416 -4,861
Total Contributions 8,737 12,150 12,214 12,636 14,461 14,361 12,918
Less: Public Sector Receipts -4,401 -4,768 -4,132 -4,169 -3,996 -4,576 -4,445
Net Contributions 4,336 7,382 8,082 8,467 10,465 9,785 8,473

Table 1

2009 2010 2011 2012 2013 2014 2015 (estimated)
Weekly £Millions £Millions £Millions £Millions £Millions £Millions £Millions
Gross Contributions 272 292 295 303 349 361 342
Less: UK Rebate -104 -59 -60 -60 -71 -85 -93
Total Contributions 168 234 235 243 278 276 248
Less: Public Sector Receipts -85 -92 -79 -80 -77 -88 -85
Net Contributions 83 142 155 163 201 188 163

Table 2

It seems that the ‘Leave’ campaign figures are broadly in line with the average weekly gross contribution over the last three years. The net contributions, after the UK rebate and after the ‘public sector receipts’ is, quite a bit higher than InFact’s figure of £120m a week, being on average £184m a week over the last three years. To be fair, the figures I’ve used don’t include payments made by the EU directly to UK based organisations, rather than via the UK Government. That could explain the rest of the difference between the two campaign’s figures. Job done!

Well, no. That’s a boring and useless accountant’s answer. Reconciling the difference isn’t enough. We need to see which figure is genuinely meaningful in the context of deciding ‘is Britain better in or out of the EU?’ To do that, the ‘differences’ need to be looked at, carefully.

The Rebate: Mrs Thatcher, Tony Blair and the EU

The UK’s rebate represents a saving to British citizens of about £93m a week. It is the biggest single thing that reduces our net contributions to the Brussels Eurocrats. It was first negotiated by Margaret Thatcher in 1984 at the Fontainebleau European Council. Tony Blair, for reasons best known to himself, in 2005, allowed a change to the rebate to pay more towards the enlargement of the EU, in effect reducing the rebate.

MrsT

David Cameron has had, on several occasions, to defend the rebate. The other EU countries do not like it, and would be rid of it as soon as they could. Obviously, they will not try before the UK has held its referendum, and probably not until the existing agreement finishes in 2020.

My point is, that while it might be difficult for the EU to scrap the rebate, it conceivably could, especially if after a ‘remain’ vote by the British people, a Europhile PM might be prepared to surrender the rebate in return for who knows what? Appointment as President of the European Council, perhaps? The UK rebate is certainly not set in stone.

Perhaps we could let this one go. Any half decent UK PM will surely find it politically impossible to surrender the rebate. If we assume that the rebate should be taken into account – after all, we deduct the rebate money before sending any cash to Brussels – then the UK sends about £260m a week to Europe, based on the last three years or so.

What about the ‘public sector receipts’?

Grants, Grants, State Aid and All That

Public sector receipts from the EU are just that. The EU gives money to the various nation states, and they then distribute it. However, the nations don’t spend it how they like. They must spend it in accordance with EU policies. What local delegation there is, and there is some, still requires compliance with some very strict (and often very bureaucratic) EU diktats. Especially in the case of the European Regional Development Fund, these regulations are there simply to get around the rules against ‘State Aid’.[1] The breakdown of Public Sector Receipts, on an annual basis, is set out in table 3.

 

2009 2010 2011 2012 2013 2014 2015 (estimated)
Annual £Millions £Millions £Millions £Millions £Millions £Millions £Millions
EAGF 2,910 2,910 2,667 2,753 2,747 2,595 2,544
EAFRD 215 439 419 291 619 567 556
ERDF 639 758 605 438 279 1,053 1,032
ESF 609 644 389 585 246 263 217
Other Receipts 28 18 52 102 86 98 96
Total Receipts 4,401 4,768 4,132 4,169 3,996 4,576 4,445

Table 3

Taking the various categories in order, I set out what they are for, and how much influence, if any, local policy (by which I mean state, or in some cases regional) exerts on the expenditure of these receipts.

CAP

Over half the money paid back to Britain in the form of ‘Public Sector Receipts’, relates to the Common Agricultural Policy, shown in table 3 as ‘EAGF’ and ‘EAFRD’. While it must be said the CAP is considerably better now that it was in the days of high food prices and food surpluses that were either dumped overseas or destroyed, it is still controversial.

The EAGF is the European Agricultural Guarantee Fund and the EAFRD is the European Agricultural Fund for Rural Development. These are both elements of the Common Agricultural Policy (CAP). The EAGF represents support paid directly to farmers. The EAFRD supports rural development. What is important to stress is that, although administered by member states, the policies determining how each fund is spent are firmly under the control of the EU. As the EU Commission itself says of the EAFRD: “Spending is linked to a performance framework with target indicators and monitoring, which effectively requires Member States and regions to deliver clearly defined results in order to keep the full budget allocation.”[2] The UK did indeed subsidise agriculture before accession to the EU. I would expect that this would continue, in some form, post any Brexit. However, it could perhaps be much better targeted to local conditions than the CAP currently allows. While many French farmers (really smallholders by UK standards) are not as heavily subsidised as they were, the rules that currently support them are the same rules that support the larger scale farming mostly prevalent in the UK. This is not a good fit. While its true that a lot of UK farmers do want to remain in the CAP, many do not. A regime suited to the UK (dare I suggest a more market orientated one) could be both cheaper to the taxpayer and better for many farmers than the ‘one size fits all’ approach of the EU. In any case, the UK Government (or perhaps the devolved assemblies for Scotland, Wales and Northern Ireland) could democratically decide, not the French farmers’ lobby deciding for all the EU.

Regional Development: Wasting Money, Bureaucracy and Euro-publicity

EUsign

I’m biased. I spent three years of my life administering an ERDF grant, not mentioned here, and I’m bitter! These grants have horribly bureaucratic rules, and include major requirements for pro-EU publicity as a requirement.

In table 3 above, The ERDF is the European Regional Development Fund and the ESF is the European Social Fund.

This is a link to the Policy documentation for these funds, agreed between the UK and the EU Commission for the current funding round. Don’t try to read it all, its huge. Even the ‘Executive Summary’ is quite long. And this is just for England. The devolved governments of Scotland, Wales and Northern Ireland look after their own income from these funds. Administering these grants can cost as much as the actual delivered benefit. That is not including the checking of these grants carried out by internal audit of the DCLG and DWP for the ERDF and ESF respectively and sometimes by external auditors too.

There are detailed and complex requirements with respect to procurement, state aid law compliance, and even document retention, which has its own 8 page guidance paper. The following is an extract from the current guidance for ERDF:

“Grant Recipients must comply with and assist the Managing Authority to comply with document retention requirements under any applicable State Aid rules. Where Projects are operating under a State Aid scheme in accordance with the General Block Exemption Regulation (Commission Regulation (EU) No 651/2014) or De Minimis Regulation (Commission Regulation (EU) No 1407/2013), Grant Recipients must maintain detailed records with the information and supporting documentation necessary to establish that all the conditions laid down in the Regulation are fulfilled. Such records must be kept for 10 years after the last aid is granted under the scheme. For ERDF Projects, the last aid may not be granted under a scheme until 2023 meaning that documents will need to be retained until 2033.” GUIDANCE ON DOCUMENT RETENTION, INCLUDING ELECTRONIC DATA EXCHANGE, FOR 2014-20 ERDF PROJECTS

In other words, you need to store ERDF records for twenty years! HM Revenue and Customs only require company tax records to be kept for 6 years.

ERDRF grants from the EU usually don’t pay for the whole project being funded. They usually require match funding from the Government, local authority or other organisation – which might be a charity – or private sector.

“European funding is designed to fill the funding gap for a project when other sources of finance are not available. There must be a reasonable expectation that another source of finance has been identified to contribute to the eligible costs. This is referred to as match funding. The match funding cannot contain any other type of European funding or be used as match against another source of European Funding.” The National ERDF Handbook For the English Convergence and Competitiveness Programmes 2007–2013 If I give you £10 on condition that you use it to buy a book that costs £20, and I get to decide that it must be an economics book, would you be grateful? Especially if you’d given me £50 in the first place with no strings attached. Ok, it’s better than me not giving you anything back, but you might have been happy with a £10 book about philosophy.

The main points I want to make here is that the overall ERDF/ESF grants policy is made in Brussels, not here in the UK. They are horribly and expensively bureaucratic to run and administer. They require a high level of pro-EU publicity – which can be expensive. They don’t even pay for the whole cost of the project. From personal experience, I would suggest that a substantial amount (say 20%) of the cash the EU provides goes to pay the administrative and compliance costs required by the EU.

I suggest that should the UK leave the EU, many (but not all) of the projects funded by ERDF and ESF could be delivered using the existing match funding and perhaps some small scale support from HMG. The projects would be more targeted to local need, and much more efficiently and cheaply delivered than EU requirements allow.

The size of the grants received by the UK Government under these headings is misleading, as so much is wasted. The UK should be free to spend these monies as it wishes, not as Brussels dictates.

What is the Answer?

One could make a case for selecting any figure in the range from £350m a week down to £120m. In no case is our EU membership ’free’.

While the rebate lasts, it would not be ridiculous to reduce the gross contribution from about £350m to £260m and quote the latter figure. The rebate never gets to the EU and the EU has no control over how it is spent. However, the rebate is not fixed forever. It could disappear as soon as 2020, and it is not unreasonable to show to the voters how much the EU could cost.

The other monies that the EU lets the British Government ‘have back’, the Public Sector receipts, are not the Governments to spend as Parliament thinks fit. The agricultural subsidies are paid in accordance with the requirements of the Common Agricultural Policy, as set by the EU. The Regional Development and Social Funds are likewise under the control of EU policies, determined by EU priorities and these may not be those of the UK Government.

I’ve only mentioned in passing the payments made by the EU directly to organisations in the UK, which are not in any of the tables. These payments are in no way subject to the British government’s control. Do we say that the USA had reduced our contribution to NATO if it bought some defence equipment from the UK? No, of course not.

As with the entire EU debate, it all boils down to a matter of sovereignty. If the UK government cannot decide how to spend the cash that taxpayers give it, or indeed not spend it and reduce the tax take, then the UK Government does not control that money. It is not ‘our’ money.

I think that ‘Leave’ can fairly say “£350 million a week “, although “Currently £260 million a week, after Mrs Thatcher‘s rebate” might be better. However, I think that ‘Leave’s “£120 Million” is misleading. The ‘Public Sector receipts’ are not ours to spend as we like.


[1] The EU, as the EEC, was intended to be a free market (not including agriculture) within its own borders. Once it realised the power of giving away money, for whatever reason, to create clients for itself, it invented ways around its founding principles. These were all very bureaucratic and still are. Jobs for the boys! In the UK, the Civil Service have taken on the role of policing the system for the EU, it’s much more heavy handed and copper plated regulation in the UK than in any other EU country. No wonder the Government as a corporate body wants to stay ‘in’!

[2] ‘EU agriculture spending focused on results’ September 2015, Introduction page.