Reforming the EU budget: could the reform-minded states ask for a better opportunity?

Today we published our long anticipated report breaking down the EU budget line by line and putting together our alternative that would reduce spending by almost 30% - saving European taxpayers around €41bn annually - while focusing the spending far more effectively on boosting the jobs and growth that both the UK and Europe desperately need.

In the press release accompanying the report, we argue that:

“Given the economic climate in Europe, the UK has a golden opportunity to push for fundamental reform of the EU budget. However, the Coalition is selling itself short in on-going talks over the EU’s long-term budget, given that its primary objectives of freezing spending and defending the rebate could be achieved simply by wielding its veto.” 

In particular, we recommend that the UK and other reform-minded states ought to prioritise and target one key area of the EU budget that it could generate the most benefit compared to the political capital needed to reform it. It could put forward a strong economic case and also threaten to veto the EU budget unless this reform goes ahead. Clearly, the potential for the cleanest policy option would be to devolve regional policy back to member states with a GDP of 90% or above the EU average. As we have pointed out repeatedly, such a move would generate huge gains for Britain (including a net saving of around £4bn over seven years) and the EU as a whole, while also boosting the EU’s jobs and growth agenda at a time when Europe needs it the most.

As Andrea Leadsom MP, co-chair of the APPG on EU reform. told the Times (which trailed the report): “It is ridiculous that we should be handing over money, that they administer, convert to euros, decide what to do with, then hand back”. The report was also trailed in the Mail.

Here are the report’s key points:

• Due to its inflexible design and poorly targeted spending schemes, the EU budget is particularly ill-suited to deliver the jobs and growth that Europe needs. However, the window of opportunity for radically reforming the EU budget is swiftly closing. Before the end of the year, national governments could potentially conclude talks over the shape and size of the EU’s next long-term budget, locking in the overall spending priorities for the period between 2014 and 2020.

• Despite the austerity facing Europe, the European Commission has proposed a 6.8% increase in EU spending for 2013, while cutting only six out of almost 41,000 EU jobs. For the next long-term EU budget post-2014, the Commission has proposed to increase the budget by yet another 5%, while only offering minor reforms on substance. 

• Based on a line-by-line analysis of the EU’s 2012 budget, Open Europe has set out an alternative budget that would reduce spending by almost 30% - saving European taxpayers around €41bn annually - while focusing the spending far more effectively on boosting jobs and growth. The UK would reduce its annual gross contribution to the EU budget by almost €5.7bn (£4.6) under such a scheme. Areas in the current budget where both savings and better targeted spending could be achieved include: 

1. Focusing the EU’s structural funds on less wealthy member states and stopping the recycling exercise whereby richer member states subsidise each other’s regional development policies would save just over €20bn.
2. Over one quarter of the EU budget is spent on subsidies to farmers and landowners, irrespective of whether they are engaged in any meaningful economic activity. Slimming down and re-focusing the CAP would bolster both rural job creation and the delivery of environmental benefits, while also achieving a saving of almost €24bn.
3. The cost of EU quangos to European taxpayers has increased by 33% in two years. Simply scrapping those that duplicate others’ work or add no value, would save €431m.
4. Scrapping the European Parliament’s additional seat in Strasbourg could save €180m. Last year, the Parliament issued tenders with a combined value of over €62.4m related to the maintenance of the Strasbourg seat – despite the building standing empty 317 days a year.
5. The cost of running the European Parliament has increased by 36% since 2005, and totals €1.7bn, while expenditure on MEPs’ salaries and allowances has increased by 77.5%, and cost €190m in 2012, excluding pensions and transitional allowances. This is largely due to reforms in 2009 which standardised MEPs' pay across all member states, which had been hugely divergent, and shifted the cost from member states to the EU budget. 
6. Also, since 2005, spending on Commission officials' pensions has increased by 48.6%, amounting to €1.3bn today, while expenditure on Commission staff salaries has risen by 17.9% and now totals €2.1bn, although this is down from a high of €2.2bn in 2010.
7. Since 2005, EU spending on ‘Education and Culture’ has risen by 61%, now standing at €1.54bn. The DG for Education and Culture employs 487 staff – more than the DG for Internal Market and Services.
8. Meanwhile, despite the importance of trade and the single market, only 2.6% of the EU budget is explicitly dedicated to facilitating these policies. Aside from the EU's six highly specialised joint undertakings, general R&D – the one area where the EU budget really can add value – only accounts for around 4.5% of EU spending in 2012. This amount should be radically increased.

• To mirror tough economic decisions in member states, there are also substantial savings to be had in a range of other areas, including administration, communications, justice & home affairs and foreign policy. 

• In the on-going negotiations over the next long-term budget, the UK is pushing for a budget freeze and seeking to defend its rebate. While this strategy has merits, it will also not achieve anything more than if the UK simply chose to veto the proposal for the next long-term budget, as in the absence of an agreement, the status quo would effectively prevail. The UK must set the bar higher and push for, at the very least, the devolution of the structural funds back to richer member states, which would be a win-win for the UK and Europe. If this is not forthcoming, the UK should be prepared to veto the budget. 

We hope that the report will stir things up in Whitehall in the on-going negotiations on both the EU’s next annual budget and the next long term, seven-year financial framework which will largely lock in EU spending until 2020. Though it won't be easy (yes, we know about every single perceived and real political obstacle to EU budget reform), the UK potentially has a number of allies if it plays its diplomatic cards right, ranging from the new member states (with the right pitch) who stand to gain substantially under the proposals, to Germany, where both government and opposition politicians have been increasingly critical (see here and here) about the current EU budget.

It's a matter of just doing it.