The EU budget after Brexit: Reform not revolution

Policy brief
24 April 2018
  • The EU is beginning to craft its financial framework (Multiannual Financial Framework or MFF) for 2020-26. The Commission will make its formal proposal in May.
  • The EU should make up for the loss of the UK’s annual net contribution of about €10 billion per year with a balanced combination of spending cuts and increased revenue.
  • Rebates enjoyed by selected member-states should be scrapped, as they make the budget less just and less transparent.
  • The EU should spend more on areas where it truly adds value, such as advanced research and educational exchange programmes.
  • Polls show that terrorism and immigration are European citizens’ most pressing concerns, but the EU budget does not address these fears well. The EU should therefore commit more money to border security.
  • It would cost about €40 billion over seven years to provide enhanced border security, fund more advanced research and enable twice as many young people to study abroad through the Erasmus programme.
  • If there is to be a balanced combination of spending cuts and increased contributions from member-states after Brexit, the EU would have to reduce spending in other areas in order to spend more on education, border security, and research.
  • Cutting the EU’s two biggest programmes, Common Agricultural Policy (CAP) direct payments and structural funds, by €80 billion over seven years (about 13 per cent) would make the maths work.
  • However, the programmes that are cut can go further with a smaller budget if the EU implements minimal national co-financing for the CAP, and uses more loans and fewer grants for structural funds.
  • For political reasons, member-states are unlikely to agree to plans for new EU revenue streams, such as a financial transactions tax or a motor-fuel tax. The EU will have to make the most of its current funding system.
  • If member-states want the EU to carry out its current range of activities and take on new challenges, they have to accept that post-Brexit income will be inadequate to cover costs. They will have to increase the percentage of national income devoted to the EU budget from 1.02 per cent of gross national income (GNI) to 1.12 per cent. Even so, in this scenario spending would fall in absolute terms after the departure of the UK.
  • The EU agreed in the current MFF to allow more flexibility in how the budget was used, in order to deal with unforeseen events. It should further relax the rules for moving money between MFF spending categories, and allow minor modifications of MFF spending ceilings after they are set.
  • If member-states can be convinced, it would also be beneficial to replace the seven-year budgetary cycle with a five-year cycle.

Noah Gordon was the Clara Marina O’Donnell fellow (2017-18) at the Centre for European Reform. 

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