In this age of austerity, every penny counts. Departments are squeezed by the Treasury to find new savings, drastic reductions in welfare spending were announced by the Chancellor last week and state-owned assets are being sold off. Despite these efforts, the prospect of eliminating the deficit has just been pushed back by yet another year.
Why, then, has one area of spending so far been completely ignored by those searching for savings?
Our gross contribution to the EU Budget for 2015-16 alone is forecast by the OBR to run at £14.5 billion – or £39.7 million each and every day. That subscription fee is larger than the scale of the welfare changes that are tearing the Labour Party apart. It’s also more than the highly controversial international aid budget. Or to look at it another way, one year of these payments is enough to finance 13 years of Osborne’s Inheritance Tax cut, with cash to spare. (And of course, this is just the direct institutional cost of EU membership – Simon Richards will explore some of the regulatory and other costs to businesses and consumers in the next instalment in this series tomorrow.)
This is a large sum of money which could be better used here in the UK – on deficit reduction, on tax cuts or on protecting elements of domestic spending, whichever you might prefer. It would be a Brexit windfall – not, as some suggest, enough to solve all our fiscal problems, but a serious chunk of cash.
The standard pro-EU response to concerns about the cost of EU membership is to point to the word ‘gross’. Sure, we pay money to Brussels, they argue, but they give loads back in grants and subsidies. This is the rationale behind those little EU flags you see on galleries or the occasional footbridge, boasting that whatever edifice you might be standing in front of was ‘funded by the EU Commission’.
There are two problems with this excuse.
First, even the net figure for our EU contribution is vast: £9.1 billion in 2014/15, £10.4 billion in 2015/16, £9.5 billion in 2016/17, £8.3 billion in 2017/18, £9.4 billion in 2018/19 and £9.7 billion in 2019/20. Britain is a net contributor to the EU – since the Eurozone crisis began, for every pound we pay in we have got back somewhere around 49 pence (the only time in EU history that we have not been a net contributor was, conveniently, the year of the last referendum). The fabled generosity of Brussels is simply a case of giving us our own money back after taking a large cut. Those plaques should really say ‘funded by the EU Commission – at a cost of double the actual price’.
Second, the argument assumes that the EU is good at spending our money in Britain. If these funds were never sent to Brussels in the first place, we would almost certainly spend them both differently and better. With a free choice over how to use this money, would we choose to fund those lobbying in favour of green taxes, for example, or the production of pro-EU freebies for officials to hand out? The evidence suggests there would be plenty of flab to cut – and where spending might be deemed necessary, such as on skills or transport, it is clearly preferable to have it all controlled democratically by national or local authorities.
Even if we chose to use some of this money in exactly the same way, we could make sizeable savings – the TaxPayers’ Alliance recently calculated that were we to directly subsidise British farmers, rather than doing so through the Common Agricultural Policy, the subsidies could stay the same while saving the Exchequer £2.8 billion a year. In short, simply deducting the money spent by Brussels in the UK from our contribution as though it was wise, efficient expenditure is to distort the true picture.
The costs could easily rise even further. In fact, they’re already rising - as Business for Britain recounted last week, between the March Budget and the July Budget the OBR increased the forecast for Britain’s net contribution by £3 billion over the course of this parliament.
Nor is the bill within our control. The thicket of treaties and regulations which govern the European project include a sting in the tail for any well-governed nation. Remember the £1.7 billion ‘surprise’ extra payment last year? That’s just one example – if your economy grows faster than other EU member states, then you are hit with a bill. Worse, if your economy performs as expected while others underperform or tank outright (as they might in, say, a Eurozone crisis) then you are also liable for more money. It’s a system of perverse incentives in which nations are punished for success and punished again for the failings of others.
On top of those standard membership fees are the inevitable demands for extraordinary payments towards the cost of the EU’s self-inflicted crises. Only yesterday, the Chancellor was in Brussels fighting off demands for £850 million of British taxpayers’ money to be used in the latest doomed bailout of Greece. It seems the decision will be taken by Qualified Majority Voting, so the UK would have no veto – though the Prime Minister told Parliament in 2010 that he had secured an agreement that Britain would not contribute to Eurozone bailouts. Now, EU officials are apparently briefing that the 2010 agreement was ‘merely political, not legally binding’ (a telling reversal which should raise concerns among those in Downing Street who claim that a renegotiation of our whole relationship could be binding without being entrenched through treaty change). The bill from Brussels can rise at any time, and regularly do so – but it rarely seems to fall.
Whatever your politics might be, the huge financial cost of membership is another compelling reason to think Britain should leave the EU. We all have our own ideas of how extra money might be useful – be it in cutting the tax burden on struggling workers, protecting a preferred aspect of public spending from the squeeze of austerity or paying off our debts to save future generations from yet more interest payments. My fellow authors in this series will recount the democratic, diplomatic and economic damage done by our involvement in the deeply misguided EU project - that we pay a fortune for the experience is salt in the wound.