18 March 2015

The UK’s financial contribution to the EU is a subject of regular irritation (which given the ill-designed and wasteful nature of the EU budget is unsurprising) and the issue will play a major role during the potential referendum campaign. The badly handled demand from the Commission last year for the UK to stump up an additional £1.7bn even resulted in polls finding a majority in favour of leaving the EU during a period of otherwise increasing support for membership.

For this reason, we are always interested in sifting through the EU contribution figures buried in the OBR’s Economic and Fiscal Outlook which accompanies the Budget. The OBR’s latest forecast envisages that compared to its estimates at the time of the Autumn statement, overall the UK will pay less into the EU budget over the next few years with a big drop in 2016/17, i.e. around the time of the potential referendum.

So what accounts for the changes? The £1.7bn payment (minus the £850m rebate) is due in the 2015/16 financial year but that was already factored in back in December, so the £1.2bn increase is due to the UK having to pay more based on the size of its economy compared to the rest of the EU. However, the OBR envisages that the same funding mechanism will save the UK £2.1bn in 2016/17 leading to a £1.8bn fall in UK contributions bringing the total to £9.9bn as opposed to £11.5bn which would have been an all-time high. The OBR also estimates that due to the stronger than assumed sterling/euro exchange rate, the UK will also effectively save a further £1.3bn by 2019/20.

However, as the OBR itself admits, “these assumptions are associated with great uncertainty” and points out that addressing the remaining reservations regarding both UK and other member states’ GNI statistical data (this is due to take place by 22nd September) could “lead to upward or downward adjustments to the UK’s contributions to the EU” – in other words, anything could still happen.

Ultimately, the best strategy to both lower the UK’s EU budget contributions and to shore up public support for EU membership is to push for radical reform to the EU budget including cutting back farm subsidies and taking wealthier member states out of the EU’s regional development funds. Conveniently, the EU is due to review its long-term budget in 2016…