BREXIT and Osborne’s creative accounting

(Translation done by Anne-Marie de Grazia)

The British Chancellor of the Exchequer, Mr. George Osborne, threatened with an « austerity blow » tax in case British voters should vote «badly » in the referendum, ie, in favour of « leaving » in the forthcoming BREXIT referendum on the European Union. But George Osborne’s statements do not correspond to the facts and are not substantiated by official EU documents[1]. The « leave » option would not imply any new burden on the British budget. Quite in the contrary. It should be recalled here that the UK is a net contributor to the EU budget, ie it pays more than it receives. As a matter of fact, over the past four years, the budget of the EU and UK contribution is as follows:

Table 1

Total contribution in euros billion

2011 2012 2013 2014
Total EU income 130,00 139,54 149,50 143,94
UK contribution 17,42 19,98 21,40 20,14
UK contribution without the “rebate” 13,83 16,18 17,07 14,07
EU subsidies to the UK 6,57 6,93 6,31 6,98
Balance -7,26 -9,24 -10,76 -7,09
Amount of the UK rebate -3,60 -3,80 -4,33 -6,07

 

Indeed, the UK already enjoys preferential treatment, following multiple negotiations which were held with Brussels. Its real contribution is actually less than its theoretical contribution (on VAT, income tax and customs duties). The difference is called the « British rebate, » or UK correction within EU accounting documents. But in spite of this correction, the net contribution of the UK varies between 10.76 and 7,09 euros bn per year. The reasoning of Mr. Osborne about an « austerity blow » budget is then unclear. Or maybe it is perfectly evident and amounting to pure propaganda. An EU exit would result in a net gain for the UK budget. Similarly, we admit not to understand the reasoning of Mr. David Cameron, the Prime Minister, who claims that a break up with the EU will result in additional difficulties in financing the National Health System (NHS) and the pension system. How a NET gain of money could jeopardize the functioning of the budget is rather mysterious. Certainly we know that the British are, from a French point of view, weird people who drive on the left, eat lamb with mint sauce and, occasionally, burn a French shepherdess … But here it is clear that David Cameron displayed an astonishing stroke of imagination, or more precisely, he is seeking to frighten the British by inventing imaginary expenses.

The European budget for major EU countries is as follows for 2014.

Table 2

Budget balances for main EU countries

France UK Germany Italy Spain NL
Contribution
VAT 2,956 2,933 3,699 1,76 1,382 0,819
GDDP 15,014 14,525 21,723 11,435 7,845 5,49
Others* 2,673 -3,3864 1,563 1,967 1,221 0,416
TOTAL 20,643 14,0716 26,985 15,162 10,448 6,725
Subsidies received 13,479 6,984 11,484 10,695 11,538 2,014
Balance -7,164 -7,0876 -15,501 -4,467 1,09 -4,711

*Tariffs and tax on sugar

 

It is found that in in proportion of GDP, the Netherlands is making the largest net contribution, which may explain the rise of Eurosceptic sentiment in that country. The net contribution of France appears also significant (about 0.4% of GDP). If Brexit were to triumph, leaving the United Kingdom would result in a financing gap of about 7 billion euros or approximately 6% of total revenue. In this case, we can estimate that major countries should pay more for the budget (for an EU reduced to 27 members).

Table 3

Financial Consequences of a BREXIT

TOTAL Total – UK Total to be funded
TOTAL 143,94 129,8684
Subsidies 142,497 135,513
Balance 1,443 -5,6446 7,0876
 
France Germany Italy Spain NL
Contribution in % of EU-27 budget 15,9% 20,8% 11,7% 8,0% 5,2%
Implied Contribution 1,127 1,473 0,827 0,570 0,367

 

It is to be noted that this move is largely bearable.

All statements regarding the doomsday budget, whether statements concerning Britain (those of Mr Cameron or Osborne) or other EU countries seem completely unfounded and are utter fantasy. Mr. George Osborne has indulged in creative accounting for purely political reasons, a behaviour which is both a shame and a disgrace

[1] http://ec.europa.eu/budget/mff/resources/index_fr.cfm and http://ec.europa.eu/budget/biblio/documents/index_fr.cfm

 


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s’est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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