UK should offer up the rebate to negotiate EU budget cut

Published Tue 30 Oct 2012
UK veto won't stop EU budget rising but will side-line Britain from Europe

Britain should attempt a 'grand bargain' with Europe by offering to give up its rebate, but only in return for a smaller EU budget focused on growth, according to a new report from the think tank IPPR.

The report, to be published ahead of the November EU Council, argues that negotiations should include meaningful reform of the Common Agricultural Policy and aim to reduce the EU Budget by 25 per cent from £120bn to £89bn, saving the UK £1.2bn from our current £12.8bn contribution.

The report argues that rather than exercising the UK veto and condemning the EU to see its old inefficient budget rolled over, Britain should put its cards on the table and call for a reformed and smaller budget for growth. As a result, Britain would end up contributing slightly less rather than more to the EU.

The report shows that the Commission's current proposal represents an increase of 16 per cent in real terms from 2011 to 2018. Chancellor Angela Merkel has proposed a smaller increase of 7.5% but is threatening to call off the November EU summit to discuss the budget unless David Cameron drops his threat to veto, rather than negotiate.

Will Straw, IPPR Associate Director, said:

"Britain should attempt a 'grand bargain' with Europe, offering to give up the rebate, but only in return for a smaller overall budget, meaningful reform of the CAP, and greater measures to enhance growth. To ensure that giving up the rebate is palatable to the British public it should be contingent on a reduction in the overall size of the Budget so that Britain's contribution to the EU becomes smaller than it is today.

"The main loser in gross terms would be France, which receives the greatest allocation of CAP direct payments but France is now a net contributor to the scheme so might be prepared to consider modest reform in the budget size, particularly since the Commission is already planning to reduce the payments that France gets in favour of poorer countries. Putting the rebate on the table might be the most effective way of persuading them.

"Germany, Italy and the Netherlands are, along with the UK, the biggest net contributors and might therefore support cutting the CAP budget. Among new member states, Czech Republic, Slovakia, Slovenia and the Baltic states are not significant beneficiaries from the current framework and may also be supportive of the move."

The report argues that the UK should argue that savings from better targeted structural funds and less distortive farm payments, would allow for a smaller overall budget that could be focused on helping countries on the periphery of the Eurozone make structural reforms to their economy, increasing resources for joint research and development projects, and creating an EU-wide industrial strategy to finance large European infrastructure projects in the fields of transport, energy and information technology.

IPPR's plan would create an expanded £18.5billion budget for growth. The report also argues for a new Commissioner for Growth to oversee this programme.

Notes to editors:

IPPR's new report - Staying in: a reform plan for Britain and Europe - will be published ahead of the EU Council meeting on November 22nd.

For more on IPPR's recent research on Europe, see: http://ippr.org/research-project/44/8095/after-the-euro-crisis-where-next-for-the-european-project

For more on IPPR's argument on the EU budget, see Will Straw's latest article for Conservative Home: http://conservativehome.blogs.com/leftwatch/2012/10/will-straw-a-british-led-grand-bargain-could-cut-the-eu-budget-by-25.html

If the UK uses the veto on a proposed EU budget, the current budget is rolled forward with a 2 per cent increase.

It is estimated that the UK would make a net saving of £3.7 billion from limiting EU structural funds to EU member states with income levels at or below 90 per cent of the EU average. However, Britain's annual structural fund payments of approximately £1.2 billion, which have historically benefited regions outside London and the South East, would be lost. For this reason it would be appropriate for an equivalent amount of the savings to be ring-fenced for regional economic development. This would have the advantage of reinvigorating regional policy in England.

Contact:

Richard Darlington, 07525 481 602, r.darlington@ippr.org

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