Why the British EU Budget Victory is Chimerical

You should care about the EU budget, but not for the same reasons as the politicians and the press.

In this age of habitual distrust between British politicians and the media, the recent conclusion of EU budget negotiations was a rare occasion of unity between the government and the press. Ruth Dudley Edwards of the Telegraph urged her readers to ‘rejoice, rejoice, rejoice!’ as Mr. David Cameron released his ‘inner Machiavelli’. The Sun, in an allusion to D-Day, the successful landing of allied forces in Normandy, lauded the Prime Minister as D-Dave.

Image courtesy of EnvironmentBlog, © 2012, some rights reserved.
Image courtesy of EnvironmentBlog, © 2012, some rights reserved.

The supposed cause for celebration is that David Cameron, through a deft alliance with other Northern European countries such as Germany and the Netherlands, had secured the first ever decrease in the overall EU budget. According to the Economist, the EU will spend a total of €960 billion between 2014 and 2020, a seven-year period. This represents a 3% decrease in real terms compared to the previous seven years, and a 12% reduction on the figure first proposed by the European Commission. In a press conference, Mr. Cameron said that “[t]he British public can be proud that we have cut the seven-year credit card limit for the EU for the first time ever”.

To the Eurosceptic (which is the majority of the British population, according to the ComRes Survey), any reduction in the EU budget is a cause for celebration. Yet the British public’s need for good news should not hide the reality that Prime Minister’s ‘victory’ at EU budget negotiations brings in real terms next to nothing to the average Briton.

This is not a result of European conniving or government incompetence – it is for the simple fact that the EU budget is minuscule. Over the years, the EU budget has generally amounted to 1% of the bloc’s GDP, or 1/50 of its total public expenditure. According to the Telegraph, in 2011, the British net contribution to the EU budget amounts to €74.53 (£64.24) per capita. Multiplying that by the 3% budgetary reduction the Prime Minister has secured, the British public will be better off by €2.23 per person per year for next seven years – barely enough to buy one black coffee per year. Taking into account the discounting effect of inflation (currently 2.7% in the U.K.), the savings look even more irrelevant.

To put things into perspective, the new social care proposals by the Health Minister, Mr. Jeremy Hunt, are predicted to cost more than £1 billion per year by the end of this decade, a figure that far outstrips the British portion of the disputed amount at EU budget negotiations. Yet while perceived strength or weakness at EU budget negotiations was a matter of political life and death, the new social care proposals were considered to be much less political.

Rather than congratulating ourselves on the 3% cut in the EU budget that the Prime Minister secured, our time would be better spent scrutinizing how the amount is spent. The current EU budget answers poorly to the stated priorities of the European Union – to develop a modern, competitive, and green European economy. The EU budget commissioner, Janusz Lewandowski, hails the recent budget as ‘an important step forward for Europe’s businesses, regions, scientists, NGOs and all beneficiaries of EU funds’. Nothing could be further from the truth. The composition of the recently negotiated EU budget is an anachronistic bow to entrenched interests at the expense of growth.

Despite accounting for merely 1.7% of the Union’s GDP in 2011, agriculture remains the largest beneficiary in the EU budget. Between 2014 and 2020, 39% of EU expenditure will be spent on the Common Agricultural Policy (CAP). Conceived in the 1950s as a means to achieve food security, the CAP has long outlived its usefulness. The relations between food autarky and food security has always been tenuous, and as the unfolding horse meat scandal reveals, European food independence does not necessarily mean higher food quality. What makes the CAP more unjustifiable is that the bulk of EU agricultural subsidies still goes to farmers in Western Europe. The ascension treaties of new EU members stipulate that Eastern European farmers receive far less EU subsidy per hectare than those in old member states. Under the recently negotiated budget, only one third of the gap would be eliminated in the next 7 years, a pace of change that is far too slow. Moreover, the current budget does not address the fact that most EU subsidies go to large scale, polluting agricultural enterprises, which is contrary to the EU’s aims of promoting environmental conservation and supporting rural income. The budget suggests that member states introduce caps on direct payments to large beneficiaries, but that is entirely at the discretion of national governments.

Because the CAP and regional cohesion funds (financial support for low income regions in the EU) are effectively ring-fenced from cuts, the reduction in the EU budget has been achieved by axing programs that are supported by the weakest political constituencies. That includes investment in infrastructure, youth training programs, research, and innovation.

In the EU 2020 targets agreed to by member states, the EU aims to achieve a 75% employment rate by 2020. An integral part of that effort is to boost the youth employment rate. The EU’s current youth unemployment rate stands above 22%. Yet according to the European Commission, there are over 2 million unfilled vacancies in the EU, indicating a significant skills mismatch. According to economists Paul Gregg and Lindsey Macmillan, each year of youth unemployment would diminish an individual’s income by 6% ten years hence and leads to one month of unemployment in an individual’s mid-thirties. However, despite the likely future high costs of persistent youth unemployment, the EU budget will devote only €6 billion, about 1.6% of the budget of the CAP, to tackling the problem.

Another area that was cut in the budget negotiations was spending on communications and infrastructure. Under the Commission’s initial proposal, the EU was to spend between 2014-2020 a total of €50 billion on energy infrastructure, broadband, e-government, and transport. Instead of €50 billion, these areas will receive €29 billion, or 7.9% of the expenditure on the CAP. As one the most service-oriented economies in Europe, Britain has a lot to gain from a more cohesive digital common market. The drastically diminished EU budget for communications and infrastructure could well mean lower earnings for British entrepreneurs in the coming years.

Overall, the EU budget reflects the general malaise in Europe: politically powerful entrenched interests are prioritised at the expense of young people and growing industries. Britain, as one of the most liberal economies in Europe, had a chance to at least try to correct that in the EU budget negotiations. But in the mad dash to pursue chimerical cuts, the Prime Minister failed to fight for a more equitable distribution of EU funds. His failure will cost Britain and Europe dearly.

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