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Wednesday, March 19, 2014

Growth in UK economy to increase EU 'stealth tax'

It's that time of year again. Chancellor George Osborne has delivered his latest budget. The EU geeks that we are, we have one question in mind: what does it say about the UK's contributions to the EU budget?

Well, as ever, this is complicated because there are lots of ways of measuring these contributions. The table below shows the main figures and how they compare to the OBR's previous estimates in December 2013 (click to enlarge):

It shows that the UK's total net and gross contributions to the EU budget are now expected to be around £2.3bn and £1.7bn higher over the next six years than previously forecast. However, the impact of this on the OBR's figures for the Government's Total Managed Expenditure (TME) and Public Sector Net Borrowing (PSNB) as shown in the Budget is neutral or even slightly positive over the same period, compared to the December forecast.

One of the reasons for this is that the OBR effectively treats the contributions that the UK makes to the EU via a share of VAT receipts, customs duties and sugar levies as a direct "EU tax" and the money therefore doesn't show up in the national accounts. UK contributions are also affected by the complex rebate calculations and how much the UK receives from the budget.

As the UK economy is now growing faster than others in the EU, the overall UK contribution increases. But because the rebate is calculated on the basis of the UK's VAT contributions and the UK gets a refund on some of the customs duties it collects, that will help reduce direct contributions from the UK Government's budget and balance out this figure over the six years.

Relative to GDP the increase is tiny and the good news is that it's due to a faster growing economy.  Nevertheless, UK plc still ends up contributing more due to the growth in the 'EU's tax base'...


Rik said...

Might be a good idea to suggest that contributions from now on should be based upon prognosis and best practices.
Prognosis as the EZ will never admit that it works as a major drag on growth.
Best practices so that failed policies (like 99% of the Hollande stuff) or failing to implement the obvious cannot be done effectively also on other members account. Happens in business more or less as standard procedure.
Latter will be difficult to implement in a world where people seem to think that the austerity discussion is the major one or that a move from austerity means a move from austerity and is extremely relevant there is not really much hope on getting to the stuff that might work in the real world.

Anonymous said...

As UK growth is actually about 0.4% Clearly the increase in the money that we give away to the economic black hole of the eussr will be well above a rate based on the figures shown.

Anonymous said...

The question is that with a "deal" such as this, who trusts our politicians to get the best for us out of Europe?!

This goes to show that successive UK governments have been naïve and/or negligent when it comes to our interests. We should make our politicians make good the financial damage to the UK balance sheet out of their own pockets. That way they would do proper due diligence before signing the next "deal".

I don't trust them one bit and trust the EU even less.

- Free trade = Yes
- Sovereignty = No
- War with Russia in the name of the EU = NO