The direct cost of Britain’s membership of the EU
How much does the UK’s membership of the European Union cost it on a daily basis? Many simple
questions have simple answers, but this one certainly doesn’t. It is important to emphasize at the start
that the costs of EU membership to the UK fall into two headings,
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The direct cost to the UK government (and some non-government entities) arising from UKEU treaties, with a payment from the UK to the European Commission or its agencies, and
The indirect costs to the UK as a whole from complying with the EU’s regulatory burden, its
protectionist trade policies and its various other interventions in British national life
(including, for example, the costs in lost jobs to existing UK citizens due to unrestricted
immigration from the rest of the EU).
This note is concerned only with the first kind of cost, “the direct cost”. For the most part, the cost
falls on the government and affects the government’s finances. It might therefore also be described as
“the direct fiscal cost”. In my annual publication for the UK Independence Party, How much does the
European Union cost Britain?, I have set out strong reasons – indeed, overwhelming reasons – for
believing that the indirect costs are much larger than the direct ones.
One reason for focussing here on the direct cost is that the subject was mentioned in the two recent
debates on EU membership between Nigel Farage, UKIP leader, and Nicholas Clegg, leader of the
Liberal Democrats. I will revert to the indirect costs in my conclusion.
Farage’s claim of £55 million a day
In its 2012 campaign literature UKIP said that EU membership costs “£53 million a day”. That was
generally dismissed as misleading and exaggerated, arising from a misinterpretation of the gross cost
to the UK taxpayer. Nevertheless, in the recent debate between Nick Clegg and Nigel Farage, the
UKIP leader reiterated the claim, saying that the cost was slightly higher at £55 million a day.
(This would be equivalent to just over £20 billion – £20,000 million – on an annual basis.) In
commentary on the debate the head of statistics at BBC News, Anthony Reuben, offered his verdict
under the subheading “Factchecking”,
Nigel Farage says that our membership of the EU costs £55 million a day…That’s a gross figure, so it
excludes the UK’s rebate and payments made to UK farmers, for example. The Office for Budget
Responsibility puts the gross figure at £45 million a day. The Treasury puts the net figure, which takes
account of things like the rebate, at £24 million a day. The European Commission takes into account even
more payments to the UK to give a net figure of £17 million a day.
So the figure given by UKIP’s leader was more than three times that from the European Commission.
In the quotation just given, the BBC gave the last word to the Commission. Is there some way of
clarifying the position? This note uses two official sources of information, balance-of-payments data
from the Office for National Statistics and the annual Command Paper (Cm. 8740) on European
Union Finances 2013 from the Treasury. In principle these two sources should give the same numbers
for the same concept, and be easy to understand and interpret when the numbers for slightly different
concepts diverge. Unfortunately, that is not so.
Official data source I. : Balance of payments database at the Office for
National Statistics
For all its woes the UK is still a nation in which the government of the day (and indeed the European
Commission) does not meddle with official statistics. Data from the Office for National Statistics is
therefore to be trusted, even if it is not always easy to find the right data and to interpret them. The
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ONS database has series for “Debits - current transfers EU28”, “Credits – current transfers EU28” and
“Net current transfers EU28” for the UK as a nation. These numbers are prepared on a quarterly basis,
but also brought together once a year in the so-called Pink Book on the UK’s balance of payments.
The “current transfers” numbers reported by the ONS are not quite the same thing as the amounts paid
(or received) by the UK government to (or from) the European Commission and its agencies. They are
not the same, because
i.
ii.
the Commission does make payments to UK companies (i.e., the private sector) for what
is termed “collaborative research and technological development”, and
some current transfers are made between private sector agents in the UK and the EU.
All the same, current transfers between the UK and the EU 28 are predominantly within officialdom,
from and to the British state, and to and from official EU institutions. The ONS figures do give us a
starting point for thinking about the direct fiscal cost of EU membership. The table below has the key
numbers, all taken from the ONS website as at the time of writing. (I should mention – in passing –
that workers’ remittances are one component of private-sector current transfers, according to the latest
balance-of-payments methodology agreed under United Nations’ auspices. My analysis in this note
would be wrong if such remittances are a big part of the “current transfers” figures, as they may be. I
admit the error in advance, and would simply plead for UK officialdom to produce decent and easyto-interpret information on this subject, which is at present at the centre of UK political debate.)
Current transfers between the UK and the EU28
All figures are in £m. and on an annual basis; they are dominated
by payments between the UK government and official EU institutions.
Debits
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
12,480
12,806
11,350
12,543
13,977
14,210
15,778
16,595
15,731
17,358
18,429
19,735
19,662
20,118
22,628
Credits
8,440
7,392
9,335
9,056
9,897
10,610
10,713
12,426
9,984
12,250
12,520
9,560
9,357
9,168
9,131
Net balance
-4,040
-5,414
-2,015
-3,487
-4,080
-3,600
-5,065
-4,169
-5,747
-5,108
-5,909
-10,175
-10,305
-10,950
-13,497
Source: Office for National Statistics website
So this approach tells us that in 2013 the UK’s gross payments to the EU were £22.6 billion, which is
equivalent to £62 million a day. Some of the money was paid back to the UK and these sums appear
as “credits” in the table above. After deducting the credits from the gross payments, the net payments
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were £13.5 billion, which is £37 million a day. Before moving on, it is worth noting that the ONS
does not produce forecasts of future government expenditure. All ONS numbers are from the past and
in that sense are backward-looking. They are not totally up-to-date (as, realistically, they could not
be), although they are the most up-to-date reliable figures available.
The government may give different figures, saying that they are current policy, and therefore more
up-to-date, accurate and meaningful than data from the ONS. (Be warned. The government may still
be “economical with the truth”, in a fashion not to be expected from the ONS.) At any rate, we need
now to check the latest Treasury Command paper on the subject, Cmnd. 8740, which was published in
November 2013. Cmnd. 8740 was the thirtieth in a series which began life following a
recommendation from the Public Accounts Committee in 1980. It contains outturns (which ought to
look like the ONS figures for the same periods), an “estimated outturn” (for 2013) and plans. In
principle, the plans in earlier years ought to be similar to the outturns now being reported, but
depressingly little verifying and cross-checking of this sort is done. I carry out some cross-checking
myself in the final section below, with disturbing results.
Official data source II. : Treasury Command paper (Cmnd. 8740)
European Union Finances 2013
The figures below are all from Table 3.A in the Treasury Command paper 8740. Not one of these
figures has been invented by me or anyone outside the government machine. They are as official as
such numbers can be.
The UK's contributions to and receipts from the EU budget
- Latest official view
All figures are in £m. and on an annual basis; the payments here are
only those which appear in the UK's public accounts.
2007
2008
2009
2010
2011
2012
2013
Gross
payments
UK
rebate
Public
sector
receipts
Net
contributions to
EU budget
12,456
12,653
14,129
15,197
15,357
15,746
17,184
-3,523
-4,862
-5,392
-3,047
-3,143
-3,110
-3,324
-4,332
-4,497
-4,401
-4,768
-4,132
-4,168
-5,237
4,601
3,294
4,336
7,382
8,082
8,468
8,623
Status of the
figures
Outturn
Outturn
Outturn
Outturn
Outturn
Outturn
Estimated outturn
Source: Cmnd. 8740, citing Office for Budget Responsibility and H M Treasury
It should be obvious straightaway that the table immediately above creates a serious problem of
reconciliation with the data for 2013 from the ONS in the previous section. The ONS data give the
UK’s total debits on current transfers to the EU as £22.6 billion and the net debits as £13.5 billion; the
official Treasury position is that gross payments were £17.2 billion and the net contributions £8.6
billion. What is going on? Can our civil servants count? My surmise is that most of the difference
between the two tables is to be explained by a footnote to Table 3.A. To quote, “Gross payment
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figures include TOR [total own resources] payments at 75 per cent. The remaining 25 per cent is
retained by the UK to cover the cost of administering collection on behalf of the EU.” This sentence
invites the procedure of multiplying the Treasury’s “gross payments” figure by 1.333 to arrive the
total amount that the UK government is in fact collecting in tax and customs duties in order to comply
with the EU treaties. In the table below I therefore compare the ONS number for “debits on current
transfers” with both the “gross payments” figures in Cmnd. 8740. and with those figures scaled up by
1.333. The resulting column of numbers – the third in the table below – is not the same as the first,
perhaps because of the points made above about private sector transfers between the UK and the EU.
Nevertheless, they are pretty close. My conclusion is that the third column here is in fact about as
good a measure of the gross “direct fiscal cost” of EU membership as anyone outside the government
machine can deduce from the rather bewildering official sources of information.
An attempt to reconcile two sources of official data
For explanation, see text. All figures in £m.
2007
2008
2009
2010
2011
2012
2013
ONS balance of
payments data Debits, current
transfers EU 28
UK's gross payments
to EU - according to
'EU Finances' Cmnd.
8740 (Nov 13)
Previous column
scaled up by 1.333,
to reflect costs of
administering
collection
15,731
17,358
18,429
19,735
19,662
20,118
22,628
12,456
12,653
14,129
15,197
15,357
15,746
17,184
16,604
16,866
18,834
20,258
20,471
20,989
22,906
If my conclusion is right (and I am open to correction), the gross direct fiscal cost to the UK
government of our EU membership was almost £23 billion last year, which equates to £63 million a
day. Government plans are for the 2014/15 figure to be much the same. This is a perfectly reasonable
figure to quote in public debate, certainly in public debate at the “hustings” level or of the
Clegg/Farage exchange kind. In other words, Nigel Farage’s figure of “£55 million a day” was
fair enough, although out-of- date and too low. (And – if the other side protests – refer them to
“Table 3.A in Cmnd. Paper 8740, from Her Majesty’s Treasury”, and see how they react.)
Further analysis: what about the net cost?
But the gross cost is not the whole story, because of course some of the money comes back to the UK.
What is the net cost, the difference between “what we pay into the EU and what we receive back”?
Like so much in EU figure-work, this question is a great deal trickier than it seems. The rebate,
originally secured by Margaret Thatcher in 1984 and partly surrendered by Tony Blair in 2005, must
of course be deducted from the gross payments figure. (Perhaps here lies the explanation for the UK’s
25 per cent retention of the tax collection made “on behalf of the EU”, mentioned in the footnote to
Table 3.A. It all seems rather mysterious, as the cost of collecting £23 billion of taxes and customs
duties cannot be £5 ¾ billion.) But what is to be said about the “other public sector receipts” from the
EU? These are of two main kinds,
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agriculture and rural development, and
regional policy.
They may be taken in turn. On the agriculture front, the EU is responsible for the so-called “Single
Farm Payments” made to all farmers in its member states, as long as they have filled out the forms
correctly. In addition there is an assortment of other disbursements which go by names like “agrienvironment payments” and payment for the “modernisation of agricultural holdings”. (I kid you not.)
The majority of these payments originate in the early 1990s, when the EU realized that it had to
discourage its farmers from producing too much food, as the dumping of Europe’s agricultural
surpluses in the world market made it unpopular in food-exporting countries across the globe. The
payments ostensibly for “rural development”, “modernisation”, the “agri-environment” and so on are
payments based on historical production patterns. They are, in fact, payments for doing nothing. In
my view they are wasteful and a disgrace, a tribute to the bargaining power of French and Italian
farmers, and testimony to the pusillanimity of the British government. In a logical world they would
be scrapped. I don’t deny that the money is received by UK farmers, but the EU’s taxpayers
(including UK taxpayers, to the extent they contribute) get little or nothing back in return.
As far as regional development is concerned, numerous parliamentary enquiries in EU regional
spending have shown it to be misdirected and badly-rationalized, and with administrative and other
costs out of proportion to the benefits. In effect, Brussels bureaucrats come to Cornwall, Northern
Ireland or wherever, and try to find projects to chuck money at. British governments of all political
complexions have asked for the repatriation of the administration of regional policy, because of the
inadequacies of the Brussels-based bureaucracy. The EU institutions have of course refused and I
doubt that the matter has even been debated at the Council of Ministers. Again, I don’t deny that
money is received by people and businesses in the UK as a result of EU regional spending. But – also
again – the returns to taxpayers are so poor that it doesn’t seem right to regard the money spent as
being 100% worthwhile.
The UK's contributions to and receipts from the EU budget
- 'The truth', drawing on official figures
All figures are in £m. and on an annual basis; the first column is
that which appears in Table 3.A of Cmnd.8740, but is scaled up by 1.33.
Net contribution to EU budget:
Public
Gross
sector
payments UK rebate receipts
2007
2008
2009
2010
2011
2012
2013
16,604
16,866
18,834
20,258
20,471
20,989
22,906
-3,523
-4,862
-5,392
-3,047
-3,143
-3,110
-3,324
If only the rebate is
deducted from
'gross payments'
If both the rebate and all 'public
sector receipts' are deducted
from 'gross payments'
13,081
12,004
13,442
17,211
17,328
17,879
19,582
8,749
7,507
9,041
12,443
13,196
13,711
14,345
-4,332
-4,497
-4,401
-4,768
-4,132
-4,168
-5,237
Source: Author's calculations, drawing from Cmnd. 8740. See text.
The 'per day' figure implied by the 2013 numbers for the net contribution is,
£53.6 million, if only the rebate is deducted, and
£39.3m., if both the rebate and "public sector receipts" are deducted.
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In any case, the British government has no say about how the EU’s bureaucracy spends its recognised
allocations in the areas of farming, rural development and regional development. If the rebate is
excluded, all the money paid to the EU by the British government is from then onwards outside
the British government’s control. In that sense the gross cost is the true cost, while the net cost is
misleading. The table above gives the gross payments figure in Table 3.A of Cmnd. 8740, but scaled
up by 1.33, and then Table 3.A’s figures for the rebate and “public sector receipts” (i.e., the
agriculture and regional money).
The table has an estimate of the daily cost of the EU in net terms on two alternative bases. On the first
basis, the number is £53.6 million (or £54 million, when rounded). This is the gross cost minus the
rebate. The number can be defended on the grounds that the day-to-day responsibility for the money’s
expenditure is determined by the EU in line with treaties and is outside the UK government’s control.
The concept of “money sent to the EU and outside the UK government’s control” is a fair one and
obviously legitimate in political exchanges. £54 million a day is a touch beneath Nigel Farage’s
figure in his debate with Clegg, but not by much. I don’t know what notion of “cost” Nigel
Farage meant when he quoted £55 million a day, but the BBC’s claim that this was a gross
figure seems wrong to me. If I were asked “the true cost to the UK of its EU membership”,
“about £20 billion a year” looks more or less right to me and that is indeed £55 million a day.
I would immediately concede that the number is controversial because I am saying that the “public
sector receipts” (i.e., the money for farming and regional development) are to be ignored. Let me
admit that I am taking a liberty since these receipts do lead to payments to UK citizens which are of
the order of £5 billion a year, a little less than a third of 1 per cent of gross domestic product. But I
would argue that the money for farming and regional development is badly spent, and gives British
taxpayers a pathetic return. If someone rejects that argument, then the net cost to the UK of its EU
membership drops to under £15 billion a year, which is about £40 million a day.
To summarize, my verdict is that the direct fiscal cost of UK membership of the EU, using 2013 data,
is one of the following three figures,
£63 million a day, in gross terms,
£54 million a day, in net terms, when the rebate is deducted from the gross figure, and
£40 million a day, in net terms, when both the rebate and EU money for farming and
regional development are deducted from the gross figure.
I would further conclude that Nigel Farage’s quotation of £55 million a day in his debate with
Nicholas Clegg was correct and reasonable, and that the alleged ‘Factchecking’ by the BBC
News’ head of statistics was wrong. Indeed, the BBC’s appeal to the Treasury as a source for the
figure of £24 million a day cannot – in my view – be substantiated from documents prepared by the
Treasury itself. Unhappily, the situation is much less clear than it ought to be. Part of the obfuscation
stems from puzzling statements in the annual command paper prepared in the Treasury, while the
Treasury command papers cannot be easily reconciled with the balance-of-payments data. In
particular, I would appreciate some elucidation of
-
-
The meaning of footnote 2 to Table 3A in Comnd. 8740, which says “Gross payment figures
include TOR [total own resources] payments at 75%. The remaining 25% is retained by the
UK to cover the costs of administering collection on behalf of the EU.” (To repeat, I cannot
believe that the cost of “administering” the “collection” of £23 billion is almost £6 billion.)
The relationship of the numbers in the various tables in Cmnd.8740 to those in the ONS’
balance-of-payments data, particularly to resolve inconsistencies when they appear to be
referring to the same concepts.
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A cross-check on my suggestion that the net direct fiscal cost to the UK from EU membership is just
under £15 billion is provided by the ONS balance-of-payments data. Please go back to the first table
in this analysis, which gives a number for the net balance of current transfers of about £14 billion in
2013. The fit is not exact, but the figures are in the same ballpark.
Perhaps the direct fiscal cost of EU membership will fall in the next few years. Perhaps. However, the
latest figures for a full year – for 2013, in other words – point to a
gross cost of almost £23 billion,
a net cost of almost £20 billion, when the rebate is deducted, and
a net cost of £14 billion - £15 billion, when both the rebate and the money returned for
farming and regional policy are deducted.
All three figures are appreciably higher than those given in the first chapter of my 2013 study for
UKIP on How much does the European Union cost Britain?. That chapter will need extensive rewriting when it comes to the 2014 edition.
Are past official plans always translated into reality?
The admission just made might seem disturbing. I have conceded that the numbers in my last big
book on the costs of EU membership, completed as recently as September 2013 and with several
remarks on 2013 as a whole, was wrong in a significant respect. But is that a failing merely of
commentators? Or does the UK government, even with the enormous bureaucratic back-up on which
it can depend, also miss targets and plans on a systematic basis?
UK payments and receipts from the EU in 2012/13 - plans and outcomes
All figures in £m. and taken from three successive issues of the annual Treasury White Papers on
European Union Finances (Cmnd. 8232 for 2011, Cmnd. 8405 for 2012 and Cmnd. 8470 for 2013.
Plans in Cmnd. 8232 - Plans in Cmnd.
December 2011
8405 - July 2012
Outturn estimated
in Cmnd. 8470 November 2013
Gross payments, as given in Cmnd. Papers
Gross payments, scaled up by 1.333
16,294
21,720
15,358
20,472
16,871
22,489
less UK rebate
less Public sector receipts
-3,212
-5,250
-3,334
-5,065
-3,172
-4,020
Net contributions to EU budget, in Cmnd. Papers
Net contributions to EU budget, adjusted for
the 25% 'retention' owed to the EU
7,832
13,258
6,021
12,073
8,708
15,297
Source: Command papers mentioned above and author's calculations
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The table above compares plans in December 2011 and July 2012 for the 2012/13 fiscal year with the
outturn estimated in November 2013. All the figures in black and red appear in official Treasury
documents, and have not been concocted by me and anyone else in UKIP. (The figures in purple
reflect my adjustments to official numbers and have been explained earlier in the text.)
I want to bring attention, in particular, to the numbers in red. In July 2012 the Treasury believed
that the net UK contribution to the EU budget would in 2012/13 be just over £6 billion. Less
than 18 months later, in November 2013, it estimated the outturn to be almost 50% higher at
£8.7 billion. I don’t need to emphasize that the gap between these two numbers is enormous.
How much confidence can be placed in the figures in the plans for future years or even in some of the
recent data which, in principle, ought to be definite and certain? Is the Treasury really in control of
these items in public expenditure or is it, in fact, bullied by the European Commission and forced to
agree payments which the British government doesn’t want? And what does that tell us about the
Treasury’s supposed accountability to Parliament.
Need for clearer and better statistics
The question “how much is the daily cost to us of staying in the EU?” is a good deal more
complicated than it looks. In this note I have compared official balance-of-payments data prepared by
the ONS (which is independent of the government of the day) with numbers in official command
papers by the Treasury (which is part of the permanent civil service intended to help the government
of the day, whatever its political complexion), and arrived at a few answers. These answers confirm
the essential correctness of the claim made by UKIP leader, Nigel Farage, in his debate with
Nick Clegg, that the cost is £55 million a day.
But it is appalling that the numbers are so difficult to interpret. With a referendum on EU membership
is prospect, an early priority for any British government elected in May 2015 must be to set out the
facts and figures accurately. It must ensure that the official machine (i.e., the Treasury in practice)
produces an annual report on the cost of EU membership which is consistent – and clearly and
obviously consistent – with balance-of-payment data from the ONS. (I don’t doubt the integrity of the
ONS. I do have my worries about the Treasury, where top civil servants are always too keen to be
chummy with the leading politicians of the day.)
In the final section of this note I showed an extraordinary change between two Treasury documents,
one dated July 2012 and the other November 2013. In that period the official view of the 2012/13 net
cost of EU membership leapt by almost £3 billion! As everyone knows, all the uncertainties lie in the
future, and we must show understanding to the Sir Humphrey’s and Sir Douglas’s in the corridors of
power. But am I alone in regarding a forecasting error of this sort (almost 50%!) as rather on the high
side? And might I also suggest that the BBC News’ head of statistics puts a disclaimer next to any
figures that he or she produces? In this subject the notion of a “fact” that can go into a “Factchecker”
is made elusive by never-ending changes of one sort or another. Every number must be specified
carefully and dated.
Before finishing, I would like again to emphasize that the direct fiscal cost is only a small part of the
economic damage that the UK suffers from being in the EU. In my 2013 exercise on How much does
the European Union cost Britain? I argued that the other costs, the indirect costs, were about 10% of
GDP. (See below and http://shukip.netnamenow.com/upload-articles/costoftheEU_2013.pdf .)
Numbers like £15 billion and £20 billion for the direct fiscal cost are bad enough, but they are
overshadowed by the much greater harm done to our country by excessive regulation and the EU’s
creeping protectionism.
Tim Congdon
7th April, 2014
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