£350 million per week to spend? Really?

The airwaves have been fairly hot over the past few weeks with claim and counterclaim about the amount of money the UK would save by leaving the EU.  £350m say the Vote Leave campaign.  Rubbish say the Remainders.  And the UK Statistics Authority wades into the debate by calling it highly misleading.  Numerous commentators have pointed out that this is a gross figure and takes no account of what the UK gets back.  One website (IN Facts) claims  that the net cost is half a Mars Bar per person per day which does not sound much at all, but is actually close to the figure in my previous article of £13.60 per month per income taxpayer. One can always make something trivial if one reduces it to half a Mars Bar a day.

What none of the commentators seem to have done (and apologies if someone has and I have missed it) is to break down the flow of this money and look at who benefits and who pays and where the £350 m figure might have come from.

To understand the EU budget and why the UK alone out of every member state gets a rebate each year one needs to know the historical context.  When the UK joined the EEC in 1973, its international trade with the rest of the world was relatively much more important than it was for the founding EEC members which had built a highly protected economic community.  In addition, the UK’s agriculture sector was much smaller in the context of the economy (2 per cent of GDP) than the EEC agricultural sectors (10-15 per cent).  These differences were important because the EEC took for itself as revenues for its centralised operations 90 per cent of the customs duties and all agricultural levies on imported goods.  The UK had to adopt not only the much higher import tariffs and levies of the EEC, (which of course forced up prices and inflation) but it had to pay them over to the European Commission.  EEC revenues rocketed as a result of the UK joining.

Was there any compensation for this cost by way of money returning to the UK?  Well, no, not of any substance, and the answer lies in the size of the agricultural sector.  At the time of joining (accession it was called, as if it were somehow being raised to a higher rank and power), the EEC had only one common policy – the Common Agricultural Policy – and it absorbed 75 per cent of the entire budget.  It had been a French construct, demanded by de Gaulle, which pushed up the prices of all agricultural products, protected the sector from world competition through tariffs, and maintained prices by buying and stockpiling surpluses.  Some of you will recall the wine lakes, and butter and sugar mountains, and wheat stockpiles, some of which had to be subsidised to be sold on world markets, and some had to be denatured or destroyed.  De Gaulle believed that the British with their relatively smaller and more efficient agricultural sector could never accept such a policy which would see them subsidising smaller, less efficient continental farmers and this would effectively prevent them joining his club.  De Gaulle, however, did not anticipate the stupidity, pig-headedness and pusillanimity of Edward Heath who was determined to join whatever the cost.  Of course, he never asked us if we wanted to pay the price.

[The birth of the CAP gives an insight into the thinking and attitudes of the European “elite”.  The Agricultural ministers of the six member states were given a deadline (December 31st, 1961) to come up with a common agricultural policy.  By midnight that day they hadn’t, so being good Europeans and able to walk on water (or able to legislate that they could), they stopped the clock, continued their negotiations for over a week, and pretended it was still 1961 and that they had met their deadline.  The deadline was important for de Gaulle because the British began their negotiations to join the Common Market at the beginning of 1962, and he wanted the CAP in place before then.  As it was, the British applied for membership without even knowing what they were applying for.]

There was little mention of these costs during the 1975 Referendum, with all the emphasis on joining a rich man’s trading club.  It was not until Mrs Thatcher came to power that the subject got a proper airing – there we were, though one of the big three economies in the Common Market but one of the poorer in terms of income per head, paying the lions share in net terms of the EEC budget.  Hence Mrs Thatcher asked for, and got, a rebate equivalent to approximately of 66 per cent of the net contribution (defined as the difference between our gross contribution and what we got back in terms of subsidies and grants).  That rebate has continued ever since, though it is not enshrined in any treaty.  It has been amended and the basis altered, notably when the countries of central and eastern Europe joined, so that the UK paid, and is paying, its full share of those costs.  It is also periodically challenged by other member states, but the UK has been able to preserve it by its threat to use its veto.  This, of course, has political consequences and has lead to the isolation of the UK in EU decision-making, and is a contributory factor to our lack of influence.

When one talks of the UK’s contributions to and the rebate from the EU, it is usual to take the figures of a given year.  However, the figures for any one year reflect adjustments from the previous three years, as a country’s income estimate is refined (on which 60 per cent of the contribution is based).  So a more meaningful approach is to take a four year rolling average.  The latest 4 year data available shows that the rebate has averaged 38 per cent of the gap between contributions and “EU”money coming back to the UK.  The average 4 year figures are:

2010-2013 annual average

€m

Gross contribution

16858

“EU” money returned to UK

6639

Rebate

3823

Net contribution

6126

In sterling terms, using the official EU average exchange rate for each of these years, the average gross contribution was £13,047m and the net contribution after rebate was £5,173m.  On a weekly basis, which is what the Leave campaign has been using, this equates to a gross contribution of £250m and a net contribution of £100m.  So why has the Leave campaign overstated the case?

Simple answer.  I don’t know.  There are only two possible reasons that I can think of.  The first is that it is a basic unthinking counter to the deception and lies of the Remain campaign which has claimed a Treasury model predicts economic collapse. In fact, the model predicts no such thing, and anyway economic models are notoriously unreliable just a year ahead, let alone 15 years.  They are based entirely on assumptions, and if you start off with the assumption that everything will get worse then obviously the model will compound that assumption.  Perhaps the economic claims of Tweedledumb and Tweedledee instigated this tit for tat – or one lie for another.  The second possibility is that the Leave campaign have got confused between euros and pounds.   According to a paper by Alessandro D’Alfonso of the European Parliamentary Research Service published in February this year, the average UK gross contribution for  2013 and 2014 was 18,107 million € (which itself is higher than European Commission data published in 2015).  And the weekly average is 348 million €!  I think some researcher at Vote Leave extracted this data and somewhere along the line the conversion to sterling was forgotten, or the headline makers did not notice the € symbol.  Either way, it’s very sloppy work which detracts from the force of the Leave arguments  which are strong enough without this.

What should have been pointed out is that there are many deadweight costs associated with money returning to the UK – the costs of complying with all the EU conditions attached to the money so that only a portion is actually available for the end purpose, and that the end purpose may not necessarily be a UK priority (examples will be given in the next article).    It should also have been pointed out that while all taxpayers contribute to these funds, the beneficiaries are very small in number, and have a vested interest in making a lot of noise to ensure that this benefit continues.  The outcry of some academics is a case in point.  The more honest academics understand that EU funding encourages academic junkets around Europe, and the requirement to team up with other institutions in as many different EU countries as possible has nothing to do with academic excellence but plenty to do with the dream of a European state controlling finance and research directions from the centre.

Then there is the rebate.  It exists, and the UK can maintain it through its veto. But the use of the veto further marginalises the UK at the Council of Ministers.  The influence that Tweedledumb maintains is wielded by the UK “at the heart of Europe (sic)” – he means the EU – is actually very little and will become even less.  One can gain friends in the EU only by buying them, and that will mean at some stage giving up the rebate.   Tweedledumb thinks the British are somehow wanted in Europe for themselves.  He is deluded.  There is dislike and jealousy of the British amongst many foreign politicians and a great desire to pull Britain down.  But they also want our money, our resources, so naturally they want us to remain.

Given the £350 million per week is clearly wrong, it would be appropriate for the Leave campaign to hold up their hands and admit they had made a mistake.  They still have the arguments, and an admission of a mistake would give them the moral high ground because Tweedledumb and Tweedledee will never admit to their lies, distortions and errors.

So come on, LEAVE, and set the record straight!

 

 

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