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Cheap at twice the price
22 Mar, 2019

EU membership costs each of us 55p a day (30p after allowing for what the UK gets back)

 

London4Europe Committee member and former HM Treasury senior civil servant Michael Romberg looks at what the UK’s contribution to the EU budget is; how to express that in meaningful terms; and sets out arguments to justify our being a net contributor.

 

What definition of the membership fee

There is no one right way to calculate and set out the UK’s contribution to the EU budget, our membership fee.

It’s a bit like asking: what is my tax bill?:

  • Ignoring the UK’s budget rebate is like saying “this is the tax I would have paid if I did not have a personal allowance”.
  • The gross contribution after deducting the rebate is “the tax I actually paid”. It reflects the amount of my money over which I have ceded control to the government.
  • The net contribution is the amount of tax I paid less the benefits I received in the form of government services. That lets me work out (ignoring practicalities) the amount by which I would be better or worse off if I provided all the government’s services myself.

While the first of these is just wrong, either of the latter two is a valid figure depending on the point to make. In a context where many people wish to “take back control”, the figure we should use is the gross contribution after deducting the rebate.

Those who wish to argue that we should spend the money on the NHS should either use a net contribution figure or explain that they would redirect the money received by UK farmers, poor regions &c. They also need to explain why they do not believe the forecasts that say that economic harm would outweigh savings on the EU budget contribution.

 

Figures to use

The latest figures that have been analysed are from 2017. They have been worked through by the House of Commons Library and by Full Fact and are derived from HM Treasury’s annual European Union Finances 2017.

The 2017 total contribution was £18.6bn. That figure, whose earlier version underlay the number on the big red bus, is certainly a wrong number to use as it fails to take into account the rebate. The rebate is deducted before the contribution is paid.

Net of the rebate the 2017 gross contribution was £13bn. So that is the amount of money over which we have ceded control to the EU.

But we get some of that back through receipts to the public sector. So the net contribution is £8.9bn. There are three further adjustments that could be made, though data quality is lower:

After deducting typical figures for these amounts, we are looking at an adjusted net contribution figure of a bit under £7bn. That is the amount that we spend in support for other EU countries and for EU institutions that we would not replicate ourselves (EU Parliament for example). It is also the amount of realisable savings from leaving the EU (ignoring the economic effects of Brexit).

Net contribution figures have been volatile. The 2017 figure is lower than for the previous 4 years – so using 2017 numbers means that both the cost of the EU and the savings from leaving are lower.

The ONS worked out a five-year average for the years 2012 to 2016: they found the contribution net of public and private sector receipts to be £8.1bn. That suggests that the £7bn figure for adjusted net contribution/ realisable savings is reasonable.

 

The membership fee and economic benefits

Pretty well every piece of serious economic analysis tells us that the wider economic effects of leaving the EU through trade and competition are expected to be negative and that these harms are forecast to outweigh the benefits from no longer paying a contribution. Here for example is an analysis by the House of Commons Library and one from Full Fact. We explain here why the forecasts from the pro-Brexit Economists for Free Trade are not believable.

In other words, there would be no realisable saving from leaving the EU after taking account of economic effects.

 

How to present the figures

 

 

Gross Contribution

 

Adjusted Net Contribution

 

  Total 2017

£13bn

£7bn

  Per week

£250m

£134m

  Per person 65m (UK 2017) ONS

£200

£108

  Per person per week

£3.84

£2.07

  Per person per day

£0.55

£0.30

  % of GDP £2.04 trillion (2017)

0.63%

0.34%

  % of UK public expenditure on health (2017-18) £145,811m *

8.9%

4.8%

  % of UK public expenditure on pensions (2017-18) £113,610m *

11.4%

6.2%

  % of UK public expenditure on education (2017-18) £87,814 *

14.8%

8.0%

  % of UK total public expenditure on services 2017-18 £733,632m *

1.77%

0.95%

 

* Public Expenditure Statistical Analyses 2018 Table 5.2

 

This table is also available in an easy to print form here.

 

The number does not matter

We must not make the mistakes of 2016 and focus on the number. If someone has a different number in the same sort of area (including £350m per week) we should say there are lots of ways of calculating the right figure and move on. The essential point is that the number is small in comparison with other public spending numbers.

We should explain that the economic harms outweigh the saving from the budget contributions – though most Leavers do not believe the forecast economic harms (here is why they should). However, the lessons from economic history are clear: the nineteenth century unifications of Germany and Italy brought economic benefits as larger internal markets allowed for industrial expansion and prosperity.

 

The key argument: it is good that we are a net contributor

We support EU activity that we believe in: peace, freedom, democracy.

We are a rich country. In 2017 we came tenth in a listing of EU countries by per capita GDP. We should show solidarity with our poorer neighbours.

Solidarity is not just a moral duty. It also helps us. If our neighbours are free, democratic and prosperous then our neighbourhood is safer and so are we.

 

 

 

The London4Europe blogs page is edited by Nick Hopkinson, Vice-Chair. Articles on this page reflect the views of the author, not necessarily of London4Europe.