7 November 2014

George Osborne’s claims of an EU budget victory don’t stack up


Imagine that the EU had simply stuck Britain with a bill, out of the blue, for £850 million – enough to fund 30,000 nurses and their pensions. There would have been outrage. Why, we would have asked, should Britain be surcharged for prosperity? Why should we be fined for having had the wisdom to keep our currency, and so recovered more quickly?

This is, in effect, what has happened. But, ludicrously, we’re being told that we ought to be cheering because George Osborne has succeeded in halving the amount. No he hasn’t. All he has done is factored in the rebate which, as the European Commission has confirmed, was always going to apply anyway. If anyone halved the amount, it was Margaret Thatcher, who negotiated the rebate in 1984.

It’s important to understand how the rebate works. It was brought in because, under the EU’s basic budget rules, Britain is structurally penalised. We are the only member state which trades more with non-members than with the other 27 EU states, and so are by far the hardest hit by the Common External Tariff. Moreover, being a net food importer with relatively efficient farms, we are clobbered both positively and negatively by the Common Agricultural Policy, paying more in and getting less back.

Because of these structural imbalances, Margaret Thatcher negotiated what is technically called the British abatement. A percentage of the difference between the amount that Britain pays in and the amount that is spent in this country is returned. The precise terms were later modified by Tony Blair, and a chunk of the rebate was surrendered, but the formula remains proportional.

Since this abatement applied throughout the period covered by the £1.7 billion, it was never in question. So all George Osborne has done is cite the figure that takes account of the rebate, rather than the raw figure, and claim that this represents a halving of the bill. It’s rather as if your employer were to quote your pre-tax salary rather than your post-tax one and claim that you were commensurately better off.

The only thing the Chancellor has achieved is a slight delay in the payment. Britain will cough up next year rather than now, and will not be billed for interest in the mean time. Well, OK, fine. But the bill remains the same. The PM had said he wouldn’t pay ‘anything like’ the sum in question. In fact, as the European Commission has confirmed, the sum has not changed by a single euro.

We’ve had a foretaste of how EU supporters will fight the referendum. Faced with a bad thing, they will claim that an even worse thing was in the offing, and then invite us to applaud when the bad thing rather than the even worse one happens. It’s what John Major used to do, what Tony Blair used to do, what Gordon Brown used to do. More and more powers slide from Britain to Brussels, but we’re supposed to be happy about the things that are salvaged.

Perhaps, of the three former PMs, the closest parallel is with Gordon Brown. He was the master of making bold financial claims that then fell to pieces when the small print emerged.

Euro-enthusiasts plainly expect us to fall for such tactics in a referendum. Are we really as gullible as they think we are?

Let’s remember the bigger picture here. With or without this ‘prosperity surcharge’, our net contribution rose by £2.7 billion last year. Indeed, incredibly, our net contributions have quadrupled in just five years. We are paying higher and higher fees to belong to the world’s only shrinking customs union. Maybe we really are as credulous as the British government’s ministers believe.

Daniel Hannan is a Conservative Member of the European Parliament and blogs at www.hannan.co.uk. His other CapX articles can be found here.