On 1 January 2021, the day after the UK’s transition out of the European Union is due to end, the EU’s new 7 year budget will come into force. Known as the Multi-annual Financial Framework (MFF), the seven year budget effectively determines everything that the European Union does through its programmes, policies and subsidies.
One of the half-truths perpetuated by the anti-Europeans on the far right is that “the EU Budget only ever rises”. In real terms this is utter rubbish. The current MFF budget framework from 2014 to 2020 involved a real terms cut in EU funding. The EU institutions (Commission, Parliament, Council, Court etc) were all expected to make 5% reductions in their staffing levels, which they have now achieved, and remain under pressure for further real-terms reductions. Contributions from the member states represent a lower proportion of Gross National Income (GNI) than they did under previous financing regimes (about 1%, while domestic spending programmes account for at least 28% of GNI). The current MFF was prepared in the aftermath of the 2008 crash (which, let’s not forget, kicked off in the USA’s dodgy mortgage market), the knock on crisis in the Eurozone and the pressure on public finances across Europe. Unfortunately an ‘austerity MFF’ followed.
This time round the Socialist & Democrat Group (S&D) in the Parliament has been very successful in making the case for bringing austerity budgeting to an end and investing for the future of Europe. At the same time we have been wrestling with the budget gap left by the UK’s planned exit at the end of the current MFF. S&D was able to win a consensus for:
- Doubling the EU’s Horizon 2020 scientific and medical research programme
- Trebling the Erasmus+ study funding scheme
- Doubling the Creative Europe programme
- A major increase in priority funding for border protection and security
- Maintaining cohesion investment in Europe’s less developed regions
- Substantial increases for environment and conservation programmes
- Requiring a 25% commitment from all programmes for climate change action, rising to 30%
- A ‘just transition’ fund for moving away from fossil fuels and retraining workers in new green technologies
- Maintaining the EU’s commitment to international development aid
These commitments are a response to the challenges posed by technology, migration, the modern skills economy. The scale of the challenge is well illustrated by the investment being made elsewhere. In China investment in scientific research in 2016 was €242 billion. In a single year. This makes the €120 billion ambition of Horizon Europe over seven years look modest indeed. Of course Horizon doesn’t represent the totality of research investment in Europe, but it is nonetheless a key programme and the primary arena for collaborative research across Europe. It represents the ambition of Europe to continue to compete on a world stage and it is a means of delivering economies of scale and developing excellence in research.
As for climate action, the urgency of addressing the focus and effectiveness of EU spending is urgent if the continent is to achieve its Paris climate commitments. Within this the establishment of a ‘just transition’ fund will be an important step to achieving a humane transition that equips working people for an alternative future rather than abandoning communities that have built their living on fossil fuel based industry.
S&D have succeeded in winning broad support from the pro-European groups in the Parliament and some beyond to an ambitious programme. Far from being extravagant, it’s the minimum investment Europe needs.
Where does the money come from?
Just as important as the spending side is how the EU gets its funding. Over the years the balance of EU funding has shifted toward funding from the member states based on their Gross National Income rather than through EU ‘own resources’ - the most obvious being customs income the significance of which has declined over time. This has created a tension between national budgets and EU ‘contributions’ that has been toxic to the cohesion of Europe. If the EU is to survive and thrive it needs to resolve this tension.
The opportunities exist to reduce the GNI-based contribution of member states by replacing them with new fair taxation of major digital, financial and trans-national corporations who currently use their cross-border operations to avoid paying their fair share. Additionally, levies on single use plastics and carbon levies can play a part. Relatively small contributions can provide both new funding for EU programmes and reduce the burden on citizens and the EU, rather than member states, is the only body with the clout to bring corporations to book.
S&D has been able to win broad support to these minimal proposals for fair taxation of corporations which in many ways is the biggest practical challenge facing European policy makers and essential to demonstrating to citizens that the political process can offer fairness and force major corporations to contribute to society. It is a strong negotiating position but it remains to be seen what approach the member states will take when their turn to approve the seven year budget comes.
Why does the matter to the UK?
Even though the UK intends to leave the EU at the end of the current MFF the decisions that are taken will matter to the UK in the future. At the very least the decisions of the big neighbour over which the UK will have little or no influence will affect us. For example the level of spending on agriculture will limit, because of fair competition rules, the amount the UK can spend on it own farming industry - at least if we want to continue to export to its largest customers. The scale of EU research programmes and the legislation around them will affect the extent to which UK institutions can engage and continue to lead world-class research. The ‘political declaration’ alongside the Withdrawal Agreement provides for participation even though we will have to pay much more than we do at present for access to the programmes, The extent to which the EU can effectively police its borders will have a knock-on effect on the UK and the overall level of the budget will matter if the UK needs to contribute in return for access to markets.
In these and many other areas and whatever the Brexiteers might say, the way the EU spends its money will continue to affect the UK for many years to come.
