October 31, 2014
David Cameron and George Osborne might be forgiven for thinking that when it comes the EU budget, it never rains, it pours. Fresh on the heels of the Commission’s explosive demand for an extra £1.7bn for this year’s EU budget, the ONS’ annual Pink Book published this morning has revealed that the UK’s contribution last year stood at a whopping £11.27bn – much higher than the £8.6bn the Treasury had forecast (see page 14 of this HMT document) and a 32% increase on 2012.
There are a number of reasons why there is such a large discrepancy:
- Partly this can be accounted for by the €11.2bn that was retroactively added onto the EU budget late last year (one of the European Parliament’s conditions for swallowing the cut to the EU’s long-term budget for 2014-2020). In addition, the growth of the UK’s economy resulted in an adjustment and increase of £781m to the UK’s contribution (-£190m via a separate VAT adjustment) – the same mechanism partially responsible for the £1.7bn demand.
- Due to its strong economic growth relative to other EU member states, a situation which looks set to continue in the near future, we also warned that the UK faced an ‘EU stealth tax’ via higher GNI, VAT and customs contributions.
- We warned last year following the landmark budget cut that the UK might yet end up paying more in net terms due to Tony Blair’s rebate cut and a larger share of EU funding going to new member states but the latest developments (the surcharge + stronger relative economic performance) risk pushing this up even higher.
Needless to say, this will only crank up the pressure on the government which is already in a difficult position vis-a-vis the EU budget, EU free movement and the European Arrest Warrant and will make it even harder for David Cameron to give any ground on the £1.7bn surcharge.