Open Europe Blog

On the Telegraph blog, we argue:

At a meeting of Europe ministers today, the UK government is set to be outvoted on the size of the EU’s 2013 budget. Having pushed for a freeze without a last-minute deal, Britain will be forced to accept a 2.8 per cent increase. This is a compromise position that gives scant consolation to UK taxpayers who will have to fork out an additional £350 million for no good reason whatsoever. Unbelievably, the Commission and some member states were pushing for a 6.8 per cent increase.

Decisions on the annual budget are decided by so-called qualified majority voting system (QMV) with the European Parliament also having to give its assent. This is the issue on which the UK is set to get stuffed this week. However, each member state has a veto over the EU’s long-term budget – known in Brussels speak as a Multiannual Framework (MFF) – which usually covers a seven-year period.  This underlines how incredibly important it is for the UK government to utilise its veto to get the EU’s long-term budget right.
Unfortunately, in talks over the EU’s long-term budget (set to run between 2014 and 2020) – also up for negotiation at the moment – the UK is merely pushing for a freeze to overall spending. While this strategy has some merits, it won’t achieve anything above and beyond what could be achieved by simply vetoing the MFF. This is because under EU rules, if a new deal over the MFF can’t be reached, the previous year’s budget is carried over, adjusted to inflation – exactly the real terms freeze that the government is currently pushing for. This is not a shrewd negotiating strategy.

So what should the UK government do instead?

There is no shortage of EU spending areas to reform. For example, it’s madness that, as Europe grapples with a solvency, competitiveness and banking crisis – all at once – around one-third of the EU budget still goes towards subsidising landowners, irrespective of whether they’re engaged in any meaningful economic activity.

But the UK government would secure a hugely disproportionate benefit by one simple move: repatriating the EU’s so-called structural funds back to Britain and other wealthy states. The structural funds are meant to help poorer regions catch up with richer ones, but in reality a large portion of the money is merely being recycled between some of Europe’s richer regions and countries, and spent on projects with little, no or negative comparable impact. Of the 37 regions under the EU’s classification system, 35 pay more in to the system than what they get back. This means that many disadvantaged UK regions – such as the West Midlands and Northern Ireland – end up as net contributors.

As argued for by the previous Labour government, and as recommended by the Commons Local Government Select Committee (alas, only from 2020), the UK should push for the repatriation of these funds for member states with a GDP of 90 per cent or above the EU average. This would achieve the following:
UK taxpayers could save almost £13 billion gross, and £4 billion net over seven years and the overall size of the EU budget is reduced by 15 per cent

-23 out of 27 EU member states would pay less into the EU budget, with France gaining the most (around €12 billion over seven years)
-All post-communist member states that joined in 2004 and 2007 would do better from the funds
-By streamlining and slimming down the funds, they could become far better tailored around regions’ individual needs
-The government, and Mr Cameron in particular, would get instant credibility on Europe

Those countries that would lose out – Spain, Italy and Greece –need a different kind of financial support to that currently is offered by the funds anyway. For example, 30 per cent of the funds in Spain still go towards roads and infrastructure – the opposite of what the country with its bust construction sector needs. This would be the best opportunity of putting this right.

In terms of a simple and easy to communicate policy proposal, this is an open goal. In terms of negotiation dynamics, despite it only ever being able to deliver a freeze, as opposed to an end to UK payments, Britain’s veto is still powerful. Not having a new MFF in place would be extremely messy and most member states, including the new ones that want a new deal to benefit from phased-in farm subsidies, have huge incentives to strike a new bargain. The UK will almost certainly get something substantial in return if it sticks to its guns.
Mr Cameron would waste a perfectly good EU veto – and a chance for a massive credibility boost on Europe – by letting this one slide.

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