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Fred Searle

BY FRED SEARLE

How Brexit will affect the EU budget

The EU budget will shrink after Brexit, prompting the bloc to raise funds in new ways, increase member state contributions or simply cut funding, according to an AHDB study

How Brexit will affect the EU budget

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Much of Fruitnet’s Brexit coverage to date has focused on the impact the divorce will have on British agriculture, but how will it affect the European Union’s budget for the remaining 26 countries of the EU 27? The AHDB has run the numbers and come up with the following analysis.

The European Commission’s figures suggest that the EU budget averaged at around €143,270 million between 2014 and 2017. This was spread across six different uses, with the biggest allocation being for agriculture through the EU’s Common Agricultural Policy.

Of this total, the UK contributed roughly €13,310m, including rebate, which is nearly nine per cent of the total budget. 

Without the UK’s contribution, the EU budget could therefore shrink to €129,960m. This means either the EU will look to raise funds to keep the budget the same, once any money from a potential Brexit deal expires, or member states will simply receive less from the EU.

The figures below are calculated across all member states equally, rather than being proportionate to the amount that each country contributes to the total EU budget.

Option 1: Maintain the budget

New ways of financing the budget have been discussed, including gaining revenue from companies’ taxable profits and collecting tariff revenue on imports from the UK after Brexit. 

However, member states could also be asked to increase their contributions to raise funds to the initial budget level. 

Countries might struggle with this, as they may have to withdraw money from other useful schemes in order to fund the revised EU budget. Whether countries can afford this will depend on their economy at the time.

In this scenario, the leading contributors would have to spend a considerable amount more on the budget: France €695m more, Spain €339m more and Germany €837m more. 

The smaller contributors, Greece and Ireland, would also see an increase, by €54m and €61m respectively, in their contribution to the budget. This could impact the industries, the finances and ultimately the economies of all member states.

Option 2: Members states receive less funding

If it is decided that member states will simply receive less EU funding, the budget of each member state would reduce by 3.7 per cent, assuming that the removal of the UK’s contribution is split equally between all 27 member states. 

In 2016, France and Germany contributed more than they took out of the EU and since 63-65 per cent of EU money received by France and Germany goes towards agriculture, they would both be impacted greatly. 

Assuming each country’s budget is affected equally, France’s funding could reduce by €488m, while Germany’s could fall by €402m. In this scenario, Germany’s funding would reduce to just over a third of the amount that they contribute to the budget. This would mean these countries would receive even less for their large contribution.

On the other hand, Spain, Greece and Ireland all currently receive more than they contribute to the EU, however Spain (which would see a €430m reduction) and Greece (whose funding would fall by €225m) can also expect to be impacted in this scenario, as they spend approximately half of their funding on agriculture. 

Although Ireland’s funding reduction (-€69m) appears slight when compared to the aforementioned countries, the effects are still likely to be hard-hitting since the country has the highest reliance on EU funding for agriculture (80 per cent according to Eurostat and the European Commission).

Conclusion

Whatever happens – whether the EU opts for one of these scenarios or a mixture – areas of EU funding are likely to be closely scrutinised. Because of this, spending on agricultural support could be squeezed, which will impact countries, and inevitably farmers, with a high reliance on funding. 

The European Commission is already proposing that funding for the Common Agricultural Policy and Cohesion Policy be reduced by five per cent.

Change is inevitable, but it is important to understand that Brexit will affect other countries as well as the UK. Brexit has the power to affect economies, agriculture and policy all over Europe and further afield, and since it is still impossible to predict what will happen after Brexit, contingency planning is a step in the right direction to prepare.

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