EU Cost of Membership

We often hear from BrExiters about how much money we “send to Brussels” and that this money would be saved if we left the EU and could be spent on other things that directly benefit Britons. We hear the same superficial and worn-out arguments for leaving the EU. Usually the NHS is mentioned, or higher pensions, or social care, or housing, or education. One tweeter even claimed we could use it to provide Netflix and Spotify subscriptions for every Briton! Doubtless some are excellent causes that would benefit from more cash (and the last suggestion isn’t something that parliament would ever approve of anyway), at present I don’t believe the Treasury ever says to spending ministers “oh, we’d love to give you more cash but we have to give this little bit to the EU”. Treasury decisions are not, largely at least, zero sum games where someone gets less because of some other spending commitment somewhere else.

The claim that £355 million a week gets “sent to Brussels” is simplistic in the first place. The EU subscription and what comes back is made up of several elements and only the NET rather than the GROSS subscription is what matters. The GROSS subscription is an amount agreed by EU treaties and is related to the GDP of each member. That may be £355m, but it doesn’t really matter because the EU deducts from that the agreed rebate which is still there despite the  claims that Tony Blair “gave it away”. The IFS have provided a more detailed analysis of what the EU actually costs. The BBC produced this: http://www.bbc.co.uk/news/uk-politics-eu-referendum-36040060  and Infacts.Org this briefing: http://infacts.org/mythbusts/uk-doesnt-send-brussels-55m-day/

Let’s remember why we got the rebate in the first place: in the early 1980s, Britain’s GDP/capita was low relative to other EU states AND the amount UK farmers received from the CAP was relatively small as they were more efficient: we paid most, got least out and the promised benefits of the yet to be agreed Single Market were well into the future. Thatcher regarded this as unfair and gained the agreement of the other EU (then 10) states to provide a rebate. Now that the CAP has been reformed somewhat (with more to come) AND the UK is in the higher ranks of GDP/capita (due to its own economic success AND the poorer east European states joining) the case for the rebate is less compelling but has become a totemic point for UK Eurosceptics.  Should we remain in we can be sure that in coming decades, the rebate WILL be up for debate and will have to be traded for other reforms of the EU budget, especially the CAP. Whether the net result is in our favour is something we cannot yet know: as in any fiscal reform, the losers shout loudly and the beneficiaries keep quiet.

So, the £355m a week is reduced by the rebate. The amount therefore that could ever be reallocated to other causes is the GROSS subscription minus the rebate. Then the EU spends money in the UK: farming subsidies from the CAP, regional aid etc flow in via government departments with the NET expenditure of roughly £7B (or £190m/week). That’s still quite a lot, of course, but still less than 0.5% of GDP: noise in the big picture of UK GDP or UK tax receipts. Money also flows to UK universities and businesses from the EU research funds (Horizon 2020, ERC etc) and UK universities are in the top 1 or 2 of EU countries for their success at EU research money (less so our businesses, especially SMEs but that’s not the fault of the EU – they don’t apply for it).

Now UKIP and others tend to focus on the £355m a week (despite the 2015 UKIP manifesto committing to only “save” the NET amount), not the much lower NET contribution. If the GROSS amount is what they plan to reallocate then that means the subsidies for farmers, regional aid and research won’t be replaced. If they plan to ensure that those currently benefiting from EU cash get the same (or more) cash afterwards, then only the NET contribution can be reallocated. Take Dan Hannan (not renowned as a great supporter of the NHS): on South Today recently he claimed he’d spend the £355m/week on building a new hospital a week! Great, Dan, how do you propose staffing said hospitals? OK, maybe he was citing this as an example of what we COULD do with the cash, but that’s not very helpful in deciding what we WOULD do. On Radio4 Today programme on 15th April, Labour MP Gisela Stuart (who as a German citizen won’t be affected by Brexit!) argued the entire £355m would be spent on the NHS, meaning farmers, scientists and regions won’t get that EU funding replaced.

We need a manifesto from the BrExiters on how the money would get used. At the moment various leave groups have spent the putative “saved” money many times over towards the NHS, social care, pension increases, energy price subsidies, house building, tax reductions, loan repayments etc. Guys, you can only spend it once!

But the EU subscription, is only part of the story. The EU isn’t a club whose sole purpose is to receive money and dispense it according to the whims of those “unelected bureaucrats in Brussels”. Let’s look at an analogy. When one joins (say) a golf club, some members use the course more than others or use the bar more than others or use the golf-pro more than others. If one monetises the actual usage then some members get value worth more   than their subscription and others get less value based on this method. Some members subsidise others when looked at in a narrow way. Yet ones membership brings other benefits: competing with other members to improve ones game; social benefits from the bar and  other facilities; physical exercise; “wheeling and  dealing” with other members or with guests; the prestige associated with being a member. Many of these are hard to monetise, but these in fact are the main reasons for being in the club. Indeed, most members find they get more out if they put more in. The EU is little different in principle except in scale and complexity. Don’t just look at the narrow cost benefit analysis of the subscription, look at the bigger picture of the whole package.

The countries that pay most are the richest countries; those that receive most are the poorest and the intention is to improve their economies so they trade more. The example of Ireland is instructive: in 1973 it was the poorest nation in the EEC. Now it is one of the richest largely as a result of EU investments and market reforms facilitated by EU membership that improved its economy and its trade with the EU (and especially the UK). That doesn’t stop it complaining about receiving less EU money now that other much poorer nations have joined.

The CBI argue we get ten times the value in economic benefits. Whether this is a plausible figure or not, it’s little different from using your golf club to entertain business prospects and making a deal at the bar after a round of golf. Sure, maybe you could have done this in your own office or over a meal but you used your golf membership and you’ll never know.

However, what seems to be happening now is that the UK is claiming it’s not getting that value anymore as the golf club has let too many “riff raff” join, booking the greens when you want them, annoying you at the bar and  taking up too much of the professional’s time (that you’re paying for) so they can compete with you.

In some areas the EU will only provide funds to a member on condition the member provides some matched funds, or imposes conditions (such as the outrageous demand the EU emblem is displayed – a regular feature of infrastructure  projects in Ireland, Spain etc – that the tabloid press get incensed about in the UK). Often the UK is unable or unwilling to match EU funds so doesn’t get them or apply for them (the recent refusal to apply for EU funds for flood relief may be a case in point). In the golf club example, it’s like having to pay a modest additional fee for a resource subsidised by the membership subscription such as the golf-pro: you don’t want to pay extra but you moan about members who do getting a “free   ride” off your subscription!

 

Below is a more detailed exploration of the issues:

Geo-Strategic Reasons for EU Membership

Geo-Political Considerations

What is meant by “Leave” the EU?

Analyses of Brexit Options

EU Laws: Are they really “pointless rules and regulation”?

Reciprocity: a glass half full or half empty?

Is the EU really undemocratic?

EU Cost of Membership

Implications for exPat Brits

Will we save money by leaving? The cost of EU Membership

Some tiresome arguments from BrExit advocates

It’s such an easy decision to leave, right?

Was Cameron shafted in the renegotiations?

Commentary on Gove’s BrExit statement

Does BrExit solve the migration crisis for the UK?

Boris at the Treasury Select Committee

Is it really Project Fear?

The Trade Embargo Strawman

The Government’s pro-Remain Leaflet

Summary of Brexit Alternatives

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