EEC, EC and the EU: UK Financial Contributions

Philip Hollobone Excerpts

Wednesday 19th April 2017 Westminster Hall

[Mr Philip Hollobone (Kettering) (Con)]

I beg to move,

That this House has considered the UK’s total net financial contribution to the EEC, EC and EU since 1 January 1973.

May I say what a huge pleasure it is to serve under your chairmanship, Mr Chope? I thank Mr Speaker for granting me this important debate. I hope that the debate will do what it says on the tin, because if my hon. Friend the Minister is unable or unwilling to do so, I shall reveal this country’s total net financial contribution to Europe since we joined the Common Market on 1 January 1973. It is a huge figure, which British taxpayers have had to spend over the past 44 years.

Mr Chope, you will recall that we joined what was then called the Common Market with effect from 1 January 1973. Its official title was the European Economic Community. Since that date, it has changed—sometimes with and sometimes without the consent of the British people—into the European Community, or the EC, and from that into the European Union. According to detailed and authoritative research published by the Library, over the past 44 years this country has contributed a net total, in real terms—in today’s money—of £187 billion. That sum has been transferred from British taxpayers to European Union taxpayers. That is up to 2016; it does not include this year, next year or the bit of 2019 before we leave that dreadful organisation. If the real-terms total is something like £187 billion today, it will be well over £200 billion by the time we leave. I estimate that we will have spent £209 billion on being a member of that organisation—that is our membership fee.

It is simply outrageous for any EU negotiator to demand that this country continues to pay to leave when we have contributed all that money, net, since we joined on 1 January 1973. I look to my hon. Friend the Minister, who is an excellent Minister in the Department for Exiting the European Union, to be extremely robust when he negotiates our exit from that institution.

[Graham Stringer (Blackley and Broughton) (Lab)]

Will the hon. Gentleman give way?

[Mr Hollobone]

I would be delighted and honoured to give way to the hon. Gentleman.

[Graham Stringer]

I am grateful. I assume that the figures the hon. Gentleman is giving are cash figures and are not updated to current value. Does he agree that, had that money been put in the country’s wallet, we would now have the largest sovereign wealth fund in the world?

[Mr Hollobone]

That is an extremely good point. The cash figure—the total of our actual payments each year in the value of money at that time—is £137.4 billion. In real terms—in today’s money—it is £184.571 billion, so £185 billion. I have added £2 billion just for fun. That is the sort of tactic that the EU negotiators will adopt, so we should start playing them at their own game. Of course, they will demand that we pay an exit or divorce bill for leaving. My argument is that we should not pay anything at all.

The European Commission’s chief negotiator, Michel Barnier, has reportedly put the exit bill at close to €60 billion. Estimates of the payment are contingent on what liabilities and assets are included and how those are shared. For example, the Centre for European Reform has produced estimates ranging from €24 billion to €73 billion, while the House of Lords European Union Committee, in its excellent report, “Brexit and the EU budget”, which was published on 4 March, points to evidence suggesting that the EU will demand between €15 billion and €60 billion. That range of estimates highlights the fact that almost every element of the potential payment is subject to interpretation and the Commission has laid out no official bill or rationale. Negotiations will determine which liabilities and assets are shared and how they are shared.

The Lords Committee concluded that if no agreement was reached with the EU,

“the UK would be subject to no enforceable obligation to make any financial contribution at all.”

The Committee received competing interpretations but felt that that interpretation was the most persuasive, although it stressed that there could be political and economic consequences of the UK leaving without reaching an agreement on the payment. I say to my hon. Friend the Minister that there will be political and economic consequences in this country if we have to pay a massive exit bill. That would be unacceptable to my constituents and, I suspect, to most Members of this House.

There are three big sources of potential liabilities as we leave, which I would dismiss almost in their entirety. The first is called—I am sorry to use French in the Chamber—reste à liquider, or RAL. In its annual budgets, the EU commits to some future spending without making payments to recipients at the time. The EU refers to those outstanding commitments as reste à liquider, and it has been suggested that the UK may be asked to contribute to that RAL when we leave.

Again, estimates of the potential size of those payments vary. Evidence to the Lords Committee suggests that the EU will argue that we could be liable for a share of between 5%, based on our share of allocated financing, and 15%, based on our gross contribution to the EU budget. The Commission’s current forecast of total RAL across the whole EU by the end of 2020 is €254 billion. Using that forecast and our maximum potential share of 15%, our liability would amount to some €38 billion. At the other end, were we to pay 5% based on our proportion of allocated pre-financing under the multi-annual financial framework, our liability could be as low as €12.7 billion. Obviously, I say that our liability should be zero, but if it is going to be at the bottom end, it should be no more than €12.7 billion.

There are other potential liabilities under the multi-annual financial framework. I am sorry about all this jargon, Mr Chope, but as you and I know, that is the way the EU has been run for the past 44 years. There is an outrageous suggestion that, because the multi-annual financial framework runs until the end of 2020, were we to leave in April 2019, we might be liable for payments made between that date and the end of 2020. Quite how the EU comes up with that is beyond me, but that is apparently its serious negotiating stance. Again, estimates vary from €14.8 billion on a 5% share to €44.4 billion on a 15% share.

However, even the German Finance Minister, Wolfgang Schäuble—I am sorry to use German in the Chamber, Mr Chope—has suggested that actually a new multi-annual financial framework could be negotiated, which would come in as soon as we leave in April 2019, thus reducing our liability to nil. The Lords Committee said that

“in Germany at least, there is an acknowledgement that the commitments made in the MFF may not be legally or politically due”.

It would seem to me that even the Germans are embarrassed by some aspects of the EU’s early negotiating stance. I argue that our liability should be zero, but the low end of the estimates is just short of €15 billion.

Then there is the thorny issue of potential pension liabilities for British nationals serving in the European Commission. The Commission of course might argue that we are liable to pay some of the pension contributions for the non-British nationals there, on the basis that the nationality of the pension recipients is irrelevant under pension law. Again, the range of estimates for our potential liability for those pensions ranges from something like €1.2 billion to €9.6 billion. If we add up all those potential liabilities, €12.7 billion, €13.2 billion and €1.2 billion at the low end for the three different categories—RAL, MFF and pension liabilities—the potential bill is €27.1 billion.

Against that, however, there is a strong moral case: we will have contributed just short of £210 billion in real terms during the lifetime of our membership. Surely that entitles us to a big slug of the EU assets. That is what would happen in any divorce court if a couple were getting divorced. According to the excellent note from the House of Commons Library, the EU has €154 billion of assets, including property, equipment, loans and investments, cash and other fungible assets. The Lords Committee concluded that the theoretical maximum that the UK could claim would be €23 billion, using 15% as a relevant share.

The UK is a member of the European Investment Bank and has capital invested in it. The Lords Committee expects that if the UK were no longer to be a member of the EU, and was therefore not a member of the EIB, it would have its capital returned, potentially with a share of the bank’s equity. The Committee says:

“The UK might expect its €3.5 billion in called up capital to be returned if it ceased to be a shareholder. Based on the current net worth of the EIB, the UK may be due a share of equity in the region of €10 billion.”

Of course, Baroness Thatcher negotiated a rebate while she served her glorious 11 years as Prime Minister. In one of her finest moments, she secured a far better deal for many years of our membership of the European Union. Without the rebate, our net real-terms contribution would of course have been even higher. I can in fact reveal that since it was introduced in 1985, it has saved British taxpayers in real terms—today’s money— £117 billion. That is a huge saving for the country as a result of what Mrs Thatcher did. We can imagine that our total net financial contribution would not have been £210 billion; it would have been £117 billion higher, had it not been for Maggie’s efforts. Sneakily, however, the EU pays us the rebate a year in arrears, so I urge the Minister in negotiating to make sure it does not try not to pay us the extra years’ payments we require when we leave. That is one of the sneaky tricks that it might try, and it would be worth €6 billion.

If we add up the €6 billion rebate, €10 billion from our share of the European Investment Bank, and €23 billion as our reasonable share of the assets, it comes to €36 billion potential assets coming our way against potential liabilities of €27.1 billion. So I would argue the EU needs to pay us. We have contributed north of £200 billion in real terms over the lifetime of our membership. If we look closely at the negotiating areas, we can see that a robust negotiator such as my hon. Friend the Minister at the table, eyeball to eyeball with Michel Barnier, should be banging the table in defence of this country and insisting that we will pay not a penny piece when we leave, because we have already contributed far more than our fair share.

I am looking to my hon. Friend the Minister, on behalf of my constituents in Kettering, 61% of whom voted to leave in the referendum, as did 52% of the people of the country: let us make sure that we have a sensible, reasonable and fair deal for the country when we leave the European Union. I hope that the Minister will stare it down.

--- Later in debate ---

[Mr Walker]

The hon. Gentleman raises an important point, which was well made during the referendum debate, which determined that we should end the relationship in which vast contributions were made.

Aside from the issue of auditing, to aggregate the figures a range of complexities and variables would need to be addressed, such as differences—as my hon. Friend the Member for Kettering mentioned—between the cash value of our payments and the real-terms 2017 prices, exchange rate fluctuations, and corrections to contributions in future years. Although the House of Commons Library paper includes a list of the UK contributions since 1973, no consolidated figure has been released by either the EU or the UK Government. The net contribution figures that I mentioned earlier are based on the UK definition, which includes the EU revenue generated through traditional own resources, VAT contributions and gross national income share of contributions. That is then netted off against the public receipts received through EU funding and the UK rebate. Private sector receipts do not flow back through the Government, so they are not included in the net contribution calculations.

As my hon. Friend also mentioned, the UK Government led by Margaret Thatcher successfully secured the rebate in 1984, which was introduced in 1985. It sought to correct a particularly pronounced imbalance between the amount the UK had to contribute and the receipts it received. The rebate was designed to reimburse around two thirds of the difference, thereby reducing the UK’s net contribution, although the exact method of calculation—like many things in the European Union—is highly complex, because certain areas of EU spending are excluded. The last Labour Government gave away some of the rebate, which contributes to the higher level of our recent contributions. I assure my hon. Friend that, encouraged by his exhortations, we will pay close attention to the detail of the rebate, including the timing of its payment, in our approach to the coming negotiations.

The European Commission also publishes outturn data on all member states’ contributions to the EU budget and their receipts on a calendar-year basis. The figure that gives for the UK’s net contribution are different from the numbers derived from the Office for Budget Responsibility’s forecasts and UK data. The main reason for that difference is that the European Commission’s numbers take into account all of the UK’s receipts, including those that go directly to UK-based recipients, such as funding for research paid to UK universities.

On 29 March, the Prime Minister confirmed the Government’s decision to invoke article 50 of the treaty of the European Union, acting on the democratic will of the British people. The article 50 process is now under way, but while we remain a member of the EU, the UK will continue to play a full part in EU business, including EU budget negotiations. We will remain committed to budgetary restraint and ensuring that we live within the current deal on the multi-annual financial framework. However, it is important that, once we have left the EU, control over how our money is spent will reside with the UK’s Government and Parliament—something I know that all the hon. Members in their places have campaigned for over many years.

We will also need to discuss how we determine a fair settlement of the UK’s rights and obligations as a departing member state, in accordance with the law and in the spirit of the deep and special relationship that we seek with the EU. I cannot prejudge the outcome of the negotiations. Debate over UK payments according to the rights and obligations of our membership is only speculation at this stage. However, I will address some of the key aspects of our financial settlement with the EU. As the House of Lords EU Committee’s report acknowledged, there are a range of opinions about the legal interpretation of existing obligations between the UK and the EU—both liabilities and assets. There is also significant uncertainty over those potential rights and obligations, and how to calculate the UK share.

Disagreement and uncertainty over the potential assets and liabilities of a member state leaving the EU are to be expected when this process has never been undertaken before. The House of Lords EU Committee’s report, “Brexit and the EU Budget”, which my hon. Friend the Member for Kettering rightly praised, notes that:

“The total UK contributions to and receipts from the EU budget are variable, difficult to calculate, and subject to interpretation. It is therefore difficult to reach an unequivocal figure for the UK’s current commitments.”

It also notes that different approaches can be taken to calculating any UK share of the EU budget as a departing member state. It concluded that the process of disentangling the UK from current financial contributions will be a matter for negotiation and dependent on the political decisions made—which is the point my hon. Friend quoted.

[Mr Hollobone]

One of the weapons my hon. Friend has at his disposal, as the hon. Member for Blackley and Broughton (Graham Stringer) said, is that Her Majesty’s Government operates audited accounts; our accounts are true. When negotiating with Michel Barnier, my hon. Friend can make the point again and again to him that his accounts are not audited; whereas our figures are verifiable, his are not.

[Mr Walker]

My hon. Friend makes an excellent point, and the Government certainly have confidence in our figures, as we always do. The fact that they are audited adds strength to that confidence.

In addition, as my hon. Friend and the House of Lords report mentioned, the UK is one of the largest shareholders in the European Investment Bank, and we benefit from investment opportunities that that bank supports. As we exit the EU, we will need to address questions over our future relationship with the European Investment Bank. There may be European programmes in which we might want to participate in future. We are an active participant in Horizon 2020, for example—the EU’s main funding instrument for collaboration on research and innovation.

The UK has a proud history of leading and supporting cutting-edge research and innovation within the EU. As we exit the EU, we would welcome agreement to continue to collaborate with our European partners on major science, research and technology initiatives. If so, it is reasonable that we make an appropriate contribution. However, that will be a decision for the UK as we negotiate the new arrangements. There are clearly various ways in which that could be done, and the Government are confident that we can achieve an outcome that works in the interests of both sides. That would form part of a new deep and special relationship between the UK and the EU.

As the European Union considers its future and the UK builds its new role in the world, we will also redefine our relationship with the EU and our neighbours in Europe. The Prime Minister has now set out the Government’s plan to achieve a new positive and constructive partnership between the UK and the European Union. The UK is a country that meets its international obligations. It is in the interests of both the United Kingdom and the European Union to agree a new partnership in a fair and orderly manner, with as little disruption as possible.

We want to play our part in making sure that Europe remains strong and prosperous and able to lead in the world, projecting its values and defending itself from security threats. We want a deep and special partnership that takes in both economic and security co-operation. However, as the Prime Minister set out in her Lancaster House speech on 17 January 2017, having been a net contributor to the European budget since we joined the Common Market in 1973,

“the days of Britain making vast contributions to the European Union every year will end.”

My hon. Friend the Member for Kettering called for us to be extremely robust in our approach. I assure him that, as befits the tough reputation of my Secretary of State, we will be robust in defending the UK’s national interest throughout the process.

Question put and agreed to.