27 May 2015

Good news for Cameron: EU spending is set to be largely frozen in 2016

With the Queen formally announcing the EU referendum bill today all eyes are on Westminster, but over in Brussels the Commission has just put out the EU’s draft budget for 2016. With the seemingly ever increasing level of EU expenditure one of the major irritants in UK-EU relations, Cameron will be pleased that he has avoided an immediate headache; overall spending is set to go up by only 1.6% – up to €143.5bn from €141.3bn in 2015 – so essentially a freeze once inflation has been factored in.

In addition, the level of new spending commitments, which the Commission describes as “tomorrow’s payments” has fallen by 5.2% – down to €153.5bn from €161.9bn in 2015 – which should ease the pressure to hike up spending in future budgets. Budget Commissioner Georgieva is also getting on top of the backlog of unpaid claims that spiraled out of control under her predecessor. All in, this provides grounds for cautious optimism that subsequent annual budgets within the current MFF cycle will also be broadly stable.

The budget also sees a modest internal re-allocation with more money directed at economically beneficial areas such as research and innovation – an increase of 11.6% compared to 2015. It is good to see another proposal from our mandate to the new Commission has been acted on. Finally, the budget would likely have been even lower were it not for the need to address the refugee crisis in the Mediterranean and its wider causes.

However the EU budget is still in need of a fundamental overhaul

Nonetheless, as ever with the EU budget, there is inevitably some bad news. Despite the welcome increase in research spending, overall this pales in comparison with spending on farm subsidies and the recycling of regional development cash around wealthy member states. In addition, spending on administration is up by a disproportionate 2.9% at a time when national budgets are still being squeezed. While expenditure on retired officials’ pensions is invariably increasing, it is absurd that cutbacks are not made elsewhere to compensate – for example, the European Parliament’s budget is going up by 2.4% to €1.84bn and it is only set to cut 9 staff posts out of a total of 6,739.

In short the budget remains wasteful and inefficient, and with the EU budget due a mid-term review at some point next year, this is definitely an area that should come under the scope of David Cameron’s renegotiation. Reforms that Cameron could table include slimming down and re-focusing the CAP, restricting regional development subsidies to poorer EU member states and scrapping a number of unnecessary EU quangos and agencies.

Finally, it is worth remembering that the headline spending amounts proposed by the Commission are often subject to change – in the past few years the budget has been retroactively topped up to meet outstanding commitments, and a number of MEPs have already pointed out that the gap between proposed spending and the maximum permitted under the MFF deal – the so-called ‘margin’ – stands at €2.2bn which could be eaten into to help finance projects under the Juncker investment plan.