EU budget: Small storm in large tea-cup

EU Commission building, Brussels Whose 2020 vision will win out?

"A big fuss over nothing". That is how many EU budget experts have described today's fight between the UK and the rest of Europe.

David Cameron would beg to differ. But you can see why Brussels pointy heads would be bemused by the Prime Minister's "line in the sand". If he loses this epic battle, the very worst that could happen is that the UK's contribution to the EU after 2013 will rise by around £500m a year.

That's not nothing. But, as John Springford has pointed out, from the Centre for European Reform, it's the equivalent of about 0.03% of our GDP - roughly the annual budget of Oxfordshire County Council.

Any increase is unwelcome, but that £500m is not just small relative to Britain's economy, it's small relative to the increase we have already seen in Britain's net contribution to the EU. Our net payment more than doubled between 2006 and 2011, from just under £4bn to more than £8bn.

We are unlikely to see anything like this kind of increase in the next few years - in fact, our net payment in 2012 is likely to fall by around £1bn this year, largely as a result of the economic slowdown. That's the key point to remember: the ups and downs of our economy, relative to the rest of the EU, will have a much larger impact on our net contribution to the EU over the next few years than today's argument in Brussels.

That may be, say UK hardliners, but it's the principle that counts. The EU should not be expanding its budget in real terms, when governments across the continent are cutting back.

You can see why they would think this point of principle is important. Luckily for David Cameron, the definition of a "real cut" or a "real freeze" is wonderfully flexible.

As I said on the Today programme this morning, to understand whether David Cameron has "won" or "lost" in Brussels, you need to know exactly what the budget is now, what it would be look like if it were held constant, allowing only for inflation (a "real freeze") - and what, precisely, has been agreed for 2014-20.

The bad news for us journalists is that all three of these numbers are subject to enormous interpretation. For example, the European Commission's initial proposal for a ceiling of 1033bn euros excludes 30bn euros in spending which has to be accounted for somewhere. President Rompuy's proposal cuts 75bn from the Commission's plan, but includes that extra spending, so the numbers don't really add up.

Another wrinkle is that the UK Treasury has also chosen to set 2011 as the base year for calculating the "frozen" budget - not 2013, which might seem more natural and would allow a larger number than the 886bn euros the Treasury has been insisting on.

Of course, that bad news for us is good news for David Cameron. A small - entirely "reasonable" - tweak in the definition of a freeze could pave the way for a great victory for the UK. But whatever happens, he knows that the change in our contribution to Brussels is likely to be, well, small change.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 237.

    Germany's tax gaffe. Einstein deflowered.

    A deal yielding €10bn and €750+a year shot down by lawmakers(Senate)

    That same Senate, rubber stamps the EU budget, bailouts for Greece etc and in fact anything or where that DE €uro's are spent.

    Why was Geithner visiting Euro land this summer? What was the deal?

    Swiss tax avoidance, the give was gold colateral status as Tier 1 rather than Tier 3

  • rate this

    Comment number 236.

    "If he loses this epic battle, the very worst that could happen is that the UK's contribution to the EU after 2013 will rise by around £500m a year.".

    £500Million per year iequates to 20x capital requirement to cover this...

    = £10BILLION..and this is just for the increase.!!!!

    The sums just get bigger and bigger.

    Get these printing presses working flat out.

  • rate this

    Comment number 235.

    Yesterday someone said that he EU 'only' spends 6% on administration.
    That's 6% of 1trillionEUR

    its a lot of money but you can either concentrate on cutting the 6% or the other 94%
    If your aim is to save the UK a lot of money you have to concentrate on the 94%, if you want to score political points back home but not save much money then concentrate on the 6% - guess which Cameron is

  • rate this

    Comment number 234.

    We could be in EFTA with Norway:-

    we could
    Norways main agreement with EU is EEA, (Switzerland is EFTA)
    This is what the Norwegian version of UKIP thinks about it

    Note they pay almost as much per head as us NOT to be in the EU

  • rate this

    Comment number 233.

    All this Euro budget, Greece defaulting, Savile, BBC scamming and Tory/LibDumbs gossip will vanish into the thin airways from the 29th when the total UK media will be perpetually navel gazing until the New Year on the publication of the Leveson Report.

    Stephanie, please impasse this diversion into history and 'keep calm and carry on' with your excellent blogs.

  • rate this

    Comment number 232.

    @157clsdPestoBlg J_f_H
    My10 Barc/HBOS/Lloyds/RBS banks c/not operate together/merge/share capital
    think you meant BoEnotCoE
    Its not democratic to see lost generations of youth
    Houses are places to live NOT pension schemes
    How do you decide which bits of those banks to break off?
    CoE=Chancellor CT=CorpTax
    How does destroying banks help youth?
    Agreed but GBrown did not see it that way

  • rate this

    Comment number 231.

    please tell commentators that "EU accounts not signed off"
    is because some countries can't account in full for EU spending just under 4%. The EU cutoff is 98%, the UK Gov. it's 95%. 'Brussels' IS signed off. We could have more EU inspectors instead of national.
    I suggest there is more fraud in the tax havens serviced by the City of London and that means we have to pay higher taxes.

  • rate this

    Comment number 230.

    We should not pay a penny to the EU over what comes back to us, and a small, on human not government terms, payment towards running costs. All EU members wanting our money for their infrastructure etc. should beg to our Foreign aid budget, that is what it is there for.

  • rate this

    Comment number 229.

    The whole thing is a shambles when were the EU accounts last signed off? A long time ago, it cannot manage its own affairs. BBC lunch time news indicated that among the winners would be French agriculture and losers infrastructure investment! The EU needs infrastructure to compete with the BRIC countries. It should be looking outwards to the emerging economies not inwards at its broken model.?

  • rate this

    Comment number 228.

    We pay a UK gov'mint to run the country.
    Since the several large building in Brussels and Strasbourg produce nothing - they are 100% administration - from my POV.

  • rate this

    Comment number 227.

    Yesterday someone said that he EU 'only' spends 6% on administration.
    That's 6% of Eu 1trillion, Eu 60 billion on paper clip counting and expenses. Truly an alternate Universe. I am old enough to remember Heath's assertion that 1 bit of EU admin should save now 27 bits of country admin. Great idea - but where is the reality Stephanie?

  • rate this

    Comment number 226.

    Some countries in the EU want a bigger budget, some want a smaller budget. So those that want a bigger budget should pay more, those that want a smaller budget should pay less.

    That wasn't so hard was it?

  • rate this

    Comment number 225.

    The whole problem of southern Europe is like Spain they have 'AN OVERVALUED CURRENCY' R.Peston on his blog. When an economy is performing badly DEVALUATION makes your exports more COMPETITIVE and imports less competitive. The standard IMF package is AUSTERITY+DEVALUATION+DEFAULT. The tragedy of the South is that their governments will not LEAVE Euro because they believe EU=Civilisation & Euro=EU

  • rate this

    Comment number 224.


    You have obviously no idea about the large costs and financial uncertainty of trading in multiple currencies as against just trading in a single currency. If you had any UNDERSTANDING you would not write as you do.

    You may of course work for a banker who pockets the hard earned income of British business, makes us uncompetitive and destroys British jobs.

    So ignorant or a banker?

  • rate this

    Comment number 223.

    I don't think that the Sterling-Euro rate is anything thing to worry about.Depreciation is the way to become competitive and Bank of England deliberately brought one about to generate export-led growth. You could say that the balance of payments is not good, but it would have been WORSE without it.It is NOT best option because higher prices for imports squeeze incomes,but other ways not as quick.

  • rate this

    Comment number 222.

    "Remove the cost of changing money, economically better for all of us, but bad for the banks"

    So the Banks have suffered since Euro introduction ?

  • rate this

    Comment number 221.

    The PM doesn't have much negotiating room. A pipe dream I know but it would be good if our domestic political parties could be pragmatic and agree a mandate for negotiation.

    For instance some leeway on budget expenditure could be given in exchange for reducing wasteful agriculture subsidies. If the new money was proper capital investment that would be a start.

  • rate this

    Comment number 220.

    211 -The Hot Chef

    Yes - all of europe should be in the euro, but the rules and imbalances must also be addressed.

    Remove the cost of changing money, economically better for all of us, but bad for the banks.

  • rate this

    Comment number 219.

    Europe is just a business - there is no political basis.
    And like any business, it is broke and will get split up or taken over.
    Just a question now of settling redundancy and pension entitlements.

  • rate this

    Comment number 218.


    What is political neutrality?

    It is impossible for a commentator to remark in a wholly dispassionate manner. Some of us have the wit and imagination to filter out these biases to get at the meat of the matter presented.

    I do not see Flanders as left-wing. In my view she is like the BBC just muddled establishment or faut left-wing. They are also defenders of their own interests.


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