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Iain Begg

January 20th, 2020

It’s still the money, stupid: Britain continues to pay into the EU budget

0 comments | 11 shares

Estimated reading time: 10 minutes

Iain Begg

January 20th, 2020

It’s still the money, stupid: Britain continues to pay into the EU budget

0 comments | 11 shares

Estimated reading time: 10 minutes

Although Britain leaves the EU at the end of January 2020, it will continue paying into the EU budget until the end of the implementation period. Iain Begg (LSE) says that although the issue has faded from view, Boris Johnson will still have to decide whether to continue paying in order to secure access to spending programmes such as Erasmus.

“Money is a great servant but a bad master” – Francis Bacon

With the UK on the cusp of formal exit from the EU, the difficult and acrimonious disputes over the ‘backstop’ already seem distant. The revised withdrawal agreement negotiated after Boris Johnson became prime minster is now seen as a success and there is new optimism about the chances of securing a trade deal in line with the political declaration. Oddly, though, the budgetary dimension of UK-EU relations has faded from view. It was once a different story, and thereby hang a few tales.

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Photo: Images Money via a CC BY 2.0 licence

After the 2016 referendum was called, one of the most contentious issues was the scope for the UK to gain from no longer being a net contributor to the EU budget. Everyone remembers the red bus and the controversy around the claim of a £350 million per week windfall for the NHS.

Despite being debunked by the Statistics Authority, the watchdog charged with overseeing the use of official statistics, the £350 million figure continued to resonate with the public and has undoubtedly fomented expectations of a boost to health spending.

In July 2017, Johnson (then Foreign Secretary) agreed with a backbencher’s suggestion that the EU could ‘go whistle’ for the money, although he later back-tracked to say that the government would agree a financial settlement, but ‘not a penny more, not a penny less’ than needed to meet its legal obligations. Even so, he regularly restated the claim. The chair of the Authority, Sir David Norgrove, subsequently wrote to Johnson in September 2017 reproving him for persisting in using the misleading figure.

In the fraught parliamentary battles of autumn 2019, Johnson repeatedly claimed every extra week the UK stayed in the EU was now costing UK taxpayers £400 million – typically adding that it was money that might otherwise have gone to a struggling NHS. He was taken to task by the BBC’s Reality Check for precisely the same reasons as when commentator after commentator deplored his previous insistence on the notorious £350 million per week.

However, this is only part of the story, because the ‘divorce bill’ negotiated as part of the withdrawal agreement meant that the UK had accepted responsibility for continuing to pay into the EU for the whole of 2020. Article 135.1 of the WA is explicit:

“For the years 2019 and 2020, in accordance with Part Four, the United Kingdom shall contribute to and participate in the implementation of the Union budgets.”

The other main part of the settlement covers obligations entered into while the UK was a member state, but for which final payment falls due after the end of 2020. The UK accepts it must pay, but the deal specifies that payments will only be made when required, the last of which (notably for the pensions of former EU staff) may be decades hence.

Given Johnson’s stance on the budget contributions, not to mention that of Dominic Cummings, Number 10 might have been expected to push for a revision of the financial settlement included in the withdrawal agreement. Yet the Johnson version of the withdrawal agreement did not materially alter the terms of the ‘divorce bill’ the UK has agreed to pay. Estimates (and they can only be approximate because some of the obligations may lapse) for the May WA pointed to a headline total of around £39 billion payable after the end of March 2019.

This figure has now fallen because the two extensions to the Article 50 process effectively meant the UK continued to pay into the EU budget as a full member up to the end of January 2020, ten months longer than expected. Quite simply, instead of paying through a divorce bill, the UK has instead paid the same amount as a member state.

Could all this be one of the reasons for the government’s determination not to extend the implementation period? Despite concerns about the compressed timetable for negotiating a new partnership with the EU, the government is adamant that it will not countenance going beyond the end of 2020, even though there is the option to do so. A key clause in the withdrawal agreement is Article 132.2(d) which states: ‘for the period from 1 January 2021 to the end of the transition period, the United Kingdom shall make a contribution to the Union budget, as determined in accordance with paragraph 3’.

The ‘paragraph 3’ wording is quite vague, referring to a decision by the ‘Joint Committee’ on the ‘appropriate amount’, but from a domestic political perspective, the implication is clear: the UK would, in the much-used phrase, still be ‘sending money to Brussels’. Ending the transition promptly would appear to forestall the invocation of this clause.

Nevertheless, despite withdrawing, the UK is likely to want to remain part of certain EU spending programmes, beyond those for international development aid (the European Development Fund) already included in the withdrawal agreement. The two most obvious ones are future EU research programmes and the Erasmus scheme which supports mobility of younger people. Indeed, a recent editorial in The Times reminded readers how Boris Johnson, when Mayor of London, had welcomed foreign students. As the Thunderer opined, ‘there is no reason why Brexit should lead to Britain quitting Erasmus.’

To sum up, the renegotiation of the withdrawal bill has not reduced the transfer of money to the EU, even though the eventual headline total will have diminished. There are also unresolved matters about future UK payments to Brussels. These may be politically touchy, but demonstrably in the national interest. Is this a case where the large Tory majority should allow the government to avoid grandstanding in favour of rational decisions? Perhaps Boris, given his fondness for the classics, should reflect on what Sophocles said: “There’s nothing in the world so demoralising as money”.

This post represents the views of the author and not those of the Brexit blog, nor LSE. It first appeared at UK in a Changing Europe.

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About the author

Iain Begg

Iain Begg is a Professorial Research Fellow at the European Institute, LSE and Co-Director of the Dahrendorf Forum

Posted In: #LSEThinks | Economics of Brexit | Exit negotiations | Featured

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