David Ingall, Past President of the UK200Group looks at the potential financial implications depending on the outcome of the upcoming EU referendum.
My previous article on the decisions we have to take in the proposed Referendum on our future in the European Union (EU), used the acronym TRIM to summarise the issues: Trade, Regulation, Immigration and Money. These were the major subjects with politics being a fifth issue.
Money is about finance, the costs of belonging and taxation and I suppose the financial benefits, if any exist. So we should able to work out whether the deal is financially OK, before we are deafened by ever louder shouting from the two sides claiming that their statistics just prove the case one way or the other. It is confusing enough now and it will not get easier.
We have to start with the Euro. We don’t belong and even the pro camp acknowledge that our failure to join was an accidental masterstroke that has allowed us to be spectators as the shambles surrounding Greece (this year) and others in past years have unfolded. It is clear that the creation of this new international currency was another step along the road to a fully integrated union. Unfortunately, one can only wonder whether the immortal phrase, “all the right notes, but not necessarily in the right order” belongs in a commentary on the EU rather than in an episode of the Morecombe and Wise show.
Full political union, with a single government and national governments reduced to the status of County Councils, is the ultimate objective of the EU, but necessity demands a single pot for the finances.
The French Minister of the Economy, Finances and Industry, Emmanuel Macron, has recently proposed a common Eurozone treasury overseen by a single finance minister and a Eurozone Parliament, as distinct from the EU parliament.
This appears to be another “spiffing idea” that will create another layer of governance, separating the bureaucracy even further from the ruled classes and fashioning a competition between two parliaments. Now that could create total chaos, as if that is unusual where the EU is concerned.
The dynamic driving force within the EU has always appeared to be provided by Germany and France. However, over the past ten years or so, France’s economic drive has waned; failing to address the total and ruinous protection afforded employees with SME’s treading a deadly tightrope when engaging staff.
Germany appears to have trodden this path with more certainty and has now become the principal driving economic force. The Euro has been a great boon to Germany, suffering none of the disadvantages of a strong deutschmark, which previously restricted growth when the upwardly mobile currency made its exports ever more expensive. But now, hiding behind a relatively weak Euro, affected by the travails of southern Europe, that exchange rate no longer matters. The imbalance between the Eurozone countries matters little, except that in a fully integrated Europe Germany’s profitability would be drained away to pay for the excesses of southern Europe. Is this what Germany wants?
The Euro gets in the way of meaningful comparisons between our costs of membership and the financial benefits we receive. For instance, one source confirmed that the UK gave €14.5 billion (£10.65 billion) in 2013 and directly got back €6.3 billion (£4.63 billion), plus the value of other things including the European Court of Justice, trading with our fellow members and “a wide range of other benefits”. That came from a pro Europe source, hardly a ringing endorsement. So what do we give (sorry contribute)?
According to the Office of Budget Responsibility, the gross cost in 2015 is slightly over £9 billion (€12.25 billion), reducing next year, but peaking in 2017 at £10.2 billion (€13.8 billion) and then reducing to around £8 or £9 billion (€10 – 12 billion) towards the end of the decade. Our contribution is a complex mixture of 0.3 per cent of VAT receipts, 75 per cent of EU levies and duties decided by the EU but collected by us and up to 1.24 per cent of GNI. What is GNI? That’s Gross National Income, probably something akin to GDP. You may recall that the EU asked for an additional billion pounds or so recently, that’s because our GNI was reassessed as the UK economy was doing better than the majority of European countries.
There are only eight countries that make a net contribution to the EU. Germany, France, Italy, ourselves, Netherlands, Sweden, Denmark, Austria and Finland, in order of contributions. The biggest recipients of EU largesse are Poland, Greece, Hungary and Spain, who each respectively receive €11.21 billion (£8.24 billion) and €3.72 billion (£2.73 billion). So we are helping subsidise these countries and the 18 others. Many are former Eastern Bloc countries that are catching up with modernisation, but there are many others who are on the gravy train, living off the work ethic of the EU’s northern European states.
The total spending of the EU in 2015 is about £111.2 billion (€151.37 billion), of which around six or seven per cent is spent on administration, that’s a lot of money not returned to the members. Around £30 billion (€40.4 billion) is spent on the Common Agricultural Policy and the rest is allegedly spent on regional development, support of various industries and other good works. Apart from the fact that the EU seems to have had a problem getting its auditors to sign-off the annual accounts and the Commission proposed a substantial increase in their budget when everyone was feeling the pinch in the recent recession, there is just too much information to get to grips with, in an article as short as this, making it tough to decide whether the EU are actually providing value for money.
Let’s look at a couple of schemes supported by the EU, in recent years. A proposal for a new road, but this one in Reunion in the Indian Ocean budgeted to cost £1.3 billion (€1.77 billion), to top up the £800million (€1.08 billion) regional development money, already spent. OK, let’s say that’s unfair, so what about the £300,000 (€408,000) spent to update the EU logo? No that’s unfair as well. What about € 2 billion (£1.47 billion) spent on a new motorway system in Madeira? These seem to be examples other countries taking advantage of the system, so why should the EU take the blame?
So how can we judge the money issue? Let us imagine that we were applying to join. Firstly, would we want to join the Euro? It is a condition that new members give up their own currency so keeping the pound would not be an option. No more problems with a strong pound for our exports to the EU, a reduction in the paperwork for dealing with the continent but little else on the positive side? The negatives would be loss of sovereignty, control over our own interest rates and being able to dictate our own economic policies. That is apart from trusting the other members of the group to support us when we might need it. We had better ask Cyprus and Greece about that.
Perhaps we ought to consider whether the administration at the European Commission is value for money, and more to the point whether it is fit for purpose? A major concern must be the audit failures and persistent rumours about schemes that have cost much for very little return and allegations of wholesale fraud. And don’t take too much notice about those billboards at developments boasting that the EU has provided funding. It is not the whole funding the boast is to make the EU appear to more generous than they really are, at least as far as we are concerned. So in financial terms, does this make the case?
Over the period of the referendum campaign you (and me, in fact all of us) will be submerged under an avalanche of statistics. By the time you have finished you will not know whether you are in Sterling, Euros or Monopoly money. So now is the time to establish your own benchmarking and come to your own decision before you have to listen to the politicians putting their own spin on the figures.Think about it now before it’s too late.
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