The Politics of Counting Billions of Beans

Just in case you were one of the half dozen or so people who thought that Brexit would be a simple affair, the UK's House of Lords European Union Committee has produced a report. Published yesterday, Brexit and the EU Budget is a 65-page analysis, with hyperlinks to the detailed evidence given on more than 70 questions and references to a multitude of EU-related documents. As one expert witness put it, there are 'many unknowns'. The chairman asked: 'Are these known unknowns or unknown unknowns?' The response was: 'All of them'.

The report covers the UK's potential liabilities to the EU and details the kinds of asset over which it might have a claim. Estimates in the media have claimed the net UK exit 'bill' as being anywhere from zero to 60 billion euros or more, and these different takes are analysed. However, the general conclusion is that all of this comes down to politics and a trade-off between different areas as part of the broader exit negotiations. It is not a thrilling read, but an instructive one that spells out the complex web of relationships within the EU.

Tony Norfield, 5 March 2017

The EU Budget: Who Pays What?

In the lead up to the UK's exit from the European Union, there will be debates not only on the question of market access and migration but also on the EU's budget. Twenty-eight member countries both pay into the EU central budget and receive funds from it, the numbers being broadly related to the relative size and wealth of an economy. For example, in 2015, Germany paid in most, €28.1bn, while receiving €11bn, to give a net payment to the EU of €17.1. At the other end of the spectrum, Poland paid in €4.2bn and received €13.4bn, so was a net recipient of €9.1bn. However, there are some interesting anomalies in the payments dating back to earlier budget debates among members.

The EU budget is no longer so dominated by the farming lobby as it was in 1985, when 70% of payments went on agriculture. But direct payments to farmers still account for 30% of the total, with another 9% on 'rural development'. It is this mechanism that France, in particular, has used to secure large payments from the central EU fund, amounting to €9bn in 2015 under the 'Sustainable growth: natural resources' budget. The agricultural payments vexed the Brits back in the 1980s, and Prime Minister Margaret Thatcher secured a rebate for the UK. In 2015, this amounted to €6bn, and the EU accounts show how this 'UK correction' was allocated to other EU members ... with France paying back the largest amount, nearly €1.5bn.

So, when the UK leaves, France might stand to gain somewhat by not paying the UK correction item. However, the bigger problem is that the UK has been the second largest net contributor to the EU budget, significantly more than France, despite both countries being not so far apart in terms of GDP and GDP per capita. Budget figures for 2015 show the UK with payments into the EU of €21.4bn, close to France's €20.6bn. But the UK received back just €7.5bn compared to France's €14.5bn. 

The following chart is taken from European Commission data. For payments made by each country it adds the total national contribution and the 'traditional own resources' payments passed on to the EU. The latter item is often missed out in graphs that are derived from an EU summary table, which leads to understating the actual payments. For receipts of funds from the EU budget, all the standard items are included.

When 'net payments' are negative, this means that the country has paid more into the EU budget than it has received; when positive, that net funds have been paid to it from the EU budget.

Let us see how this plays out!

Tony Norfield, 12 January 2017