Taking part in future EU budget talks is good for the UK

The UK has been invited to take part in negotiations on the next EU budget period, which starts after we are due to leave. This has given rise to Eurosceptic talk of EU ‘trickery’ and of the UK being ‘ensnared’. In fact, we should all – Brexiteer or Remainer – see this as an opportunity to move financial talks beyond the exit bill, and one which the Government should seize.

The exit bill has been one of the key issues in talks so far - but it is unrelated to the future relationship

The UK has agreed to pay a financial settlement – or exit bill – to the EU of between £35-39 billion. The bulk will be paid over the next few years, with small annual payments running into the 2060s.

This has been a particularly sensitive issue in the UK, with Brexit-supporting politicians seeking to link the exit payment to the future relationship between the UK and the EU. David Davis told the DExEU Select Committee that Parliament will want to know ‘what have we got for’ the financial settlement.

But the EU has been clear that negotiations on the future relationship will only begin in earnest after March 2019, when the UK is no longer a member state. So, to wrap up the Withdrawal Agreement, the £35-39 billion payment will have to be made before the future relationship is known, whether we like it or not. Some commentators have therefore argued that the UK has lost its ‘biggest bargaining chip’ before the important talks on the future relationship have even begun.

The loss of the UK’s contribution is making the current budget negotiations (even) more tense

As Brexit talks continue, negotiations have begun on the next ‘multi-annual financial framework’ (MFF), which will cover EU spending for the period of 2021-2027. It is these talks that the UK has been invited to take part in.

The UK previously made the third-largest contribution to the central EU budget, but that will end after Brexit, leaving a gap of around €10 billion per year. As a result, the bloc is struggling to work out how to cut spending while balancing different member states’ priorities. Small wonder many EU officials would welcome the UK at the table, but contrary to what some are claiming, this need not be a prelude to the UK being short-changed.

Some member states are keen to ensure that their own contributions do not rise. The ‘frugal four’ – Austria, Denmark, the Netherlands, and Sweden – are facing off against poorer, Eastern member states like Romania and Bulgaria who do not want to lose out because of Brexit.

The negotiations are complicated by French and German willingness to up their contributions, subject to certain conditions, and certain countries like Spain and Italy who are worried that their net contributions will increase to fill the hole left by the UK.

A willingness to contribute to some EU programmes after Brexit could help bridge the gap

The UK’s future financial contribution to EU programmes are to be discussed in the context of the future MFF. Given the strength of feeling about the EU budget in capitals across Europe, ongoing British contributions to certain programmes will be welcome throughout the continent. They clearly want the UK’s help with deciding on future budget priorities.

The Prime Minister says the UK is prepared to continue to contribute financially to certain EU agencies and programmes. In some areas, like the Horizon 2020 scientific research programme, the UK actually gets more out than it puts in, and ongoing contributions from Britain will not necessarily help the other member states. But funding certain agencies, like Europol, which will lose a chunk of their budget as a result of Brexit but won’t see a significant reduction in costs, will be helpful to the EU in its budget negotiations. This will generate goodwill with EU partners and secure benefits for the UK.

The UK could go further – but that will be politically unpopular

But the UK could make a bigger difference to the MFF negotiations by contributing to other EU schemes. The Government is legally committed to spend 0.7% of national income on international development. The UK is spending €4.5bn through the EU’s budget during 2014-2020, already making it the third largest contributor. Directing a greater proportion of the aid budget through Brussels would not increase costs to the UK, as it will spend this money anyway, but would surely be welcomed by EU partners.

If the UK wanted to go further, it could directly support economic development in poorer member states, like Norway does; but that would clearly be another cost for the UK. Norway currently contributes about €80 per person per year directly to poorer member states, while the UK’s current annual net contribution works out at about €160 per person per year. Moving to the Norway model would still be a significant cost, but would represent a clear reduction in how much the UK pays to member states; and may help the UK secure a closer relationship with the Single Market, and greater influence over EU priorities, once it has left the bloc.

While not all these paths will be politically popular, the door is clearly still open to the UK to get involved in the future of the EU’s spending. The Government should seize this opportunity. 

For more on the EU divorce bill, read our explainer.