ICAEW chart of the week: EU Budget 2024

My chart for ICAEW this week illustrates how Ireland has displaced Luxembourg in contributing the most to the EU Budget on a per capita basis.

EU Budget 2024
ICAEW chart of the week

Vertical bar chart showing contributions per person per month to the EU budget for 2024 by country (blue bars) and the EU average (purple bar).

Ireland: €53.20
Luxembourg: €50.70
Belgium: €44.10
Netherlands: €39.00
Denmark: €37.80
Finland: €31.30
Germany: €29.70
Slovenia: €28.90
France: €28.60
Austria: €28.50
Sweden: €25.20
EU average: €25.20
Italy: €24.40
Malta: €23.20
Spain: €21.80
Estonia: €21.70
Cyprus: €20.70
Czechia: €20.30
Lithuania: €20.00
Portugal: €17.80
Latvia: €16.90
Hungary: €16.20
Poland: €15.70
Greece: €15.40
Slovakia: €15.00
Croatia: €13.10
Romania: €12.00
Bulgaria: €10.50

25 Jan 2024.
Chart by Martin Wheatcroft FCA. Design by Sunday.
Sources: European Union, 'EU Budget 2024'; Eurostat, 'Population projections'; ICAEW calculations.

(c) ICAEW 2024

The European Union’s Budget for the 2024 calendar year amounts to €143bn, with national governments contributing €137bn and EU institutions generating the balance of €6bn. At a current exchange rate of £1:€1.17 this is equivalent to a budget of £122bn comprising national contributions of £117bn and other income of £5bn.

My chart illustrates how much national governments contribute to the EU budget on a per capita basis, ranging from Ireland contributing the most to Bulgaria the least. Ireland’s recent economic success has seen it overtake Luxembourg as the country with the highest GDP per capita, and hence the highest per capita contributor to the EU Budget. 

The average contribution for the EU’s population works out at just over €302 (£258) per person per year or €25.20 (£21.50) per person per month, based on a total population of 453m living in the 27 EU member countries.

The chart shows how Ireland’s contributions are equivalent to €53.20 per person per month, followed by Luxembourg on €50.70, Belgium on €44.10, Netherlands on €39.00, Denmark on €37.80, Finland on €31.30, Germany on €29.70, Slovenia on €28.90, France on €28.60, Austria on €28.50, Sweden on €25.20, Italy on €24.40, Malta on €23.20, Spain on €21.80, Estonia on €21.70, Cyprus on €20.70, Czechia on €20.30, Lithuania on €20.00, Portugal on €17.80, Latvia on €16.90, Hungary on €16.20, Poland on €15.70, Greece on €15.40, Slovakia on €15.00, Croatia on €13.10, Romania on €12.00, and Bulgaria on €10.50.

Total contributions of €137bn amount to approximately 0.8% of the EU’s gross national income of €17.7trn. They comprise €25bn from 75% of customs duties and sugar sector levies, a €24bn share of VAT receipts, €7bn based on plastic packaging that is not recycled (providing countries with an economic incentive to reduce it), and €82bn calculated as a proportion of gross national income. 

While the UK ‘rebate’ no longer exists, these numbers in the chart are net of the equivalent but proportionately smaller ‘rebate’ totalling €9bn that continues to go to Germany, Netherlands, Sweden, Austria and Denmark. The EU Commission had proposed removing it during the negotiations for the 2021 to 2027 multi-year financial framework but was unsuccessful in persuading these five countries to give it up.

The chart only shows the gross contributions paid by national governments – it doesn’t show the amount that comes back to each country through EU spending, whether in the form of economic development funding and agricultural subsidies, through science, technology, educational or other programmes, or through the economic benefits of hosting EU institutions. This will reduce the effective net contribution for most of the richer nations, while poorer member states will benefit by more coming from the EU than they are paying in.

The numbers also do not include €113bn (£97bn) of spending through the NextGenerationEU programme that is funded by direct borrowing by the EU. This is equivalent to additional spending of €20.80 per person per month that will need to be repaid over the next few decades – hopefully through the benefits of higher economic growth.

This chart was originally published by ICAEW.

ICAEW chart of the week: Sterling exchange rates 2023

My chart for ICAEW this week looks at how the pound appreciated in value against the euro, US dollar, yuan and yen respectively during 2023.

4 x step charts titled 'Sterling exchange rates 2023'


Euro

30 Dec 2022: €1.128 = £1.00
Change: +2%
29 Dec 2023: €1.154 = £1.00


US dollar

30 Dec 2022: $1.204 = £1.00
Change: +6%
29 Dec 2023: $1.275 = £1.00


Chinese yuan

30 Dec 2022: ¥8.31 = £1.00
Change: +9%
29 Dec 2023: ¥9.08 = £1.00


Japanese yen

30 Dec 2022: ¥159 = £1.00
Change: +13%
29 Dec 2023: ¥180 = £1.00


4 Jan 2024.
Chart by Martin Wheatcroft FCA. Design by Sunday.

Source: Bank of England, 'Daily spot exchange rates against sterling'.

My first chart of the week of 2024 for ICAEW looks back at 2023 and how sterling strengthened against the euro, US dollar, yuan and yen – the currencies of the four largest economies in the world – based on exchange rates reported by the Bank of England.

The smallest increase was against the principal currency of the European Union, our largest trading partner, with the sterling to euro exchange rate up by just over 2% from £1:00:€1.128 to £1.00:€1.154 between 30 December 2022 and 29 December 2023. 

This contrasted with a 6% rise in sterling against the US dollar during 2023 from £1.00:$1.204 at the end of 2022 to £1.00:$1.275 at the end of 2023, a 9% rise against the Chinese yuan renminbi from £1.00:¥8.31 to £1.00: ¥9.08. Sterling increased, and a 13% increase against the Japanese yen from £1.00:¥159 to £1.00:¥180.

Exchange rate movements can be attributed to multiple factors, including relative rates of inflation and economic growth, interest rates, trade and investment flows, and fiscal credibility among others – both actuals and sentiment about prospects for the future. In sterling’s case, expectations that interest rates in the UK are likely to stay higher for longer than in other major economies is a key contributor to the rise in sterling over 2023, although this is only part of the story.

While sterling has appreciated over the last year against these and many other currencies, the pound is still much lower in value than 10 years ago, being down 4% against the euro compared with £1.00:€1.200 at the end of 2013, down 23% against the US dollar from £1.00:$1.653, and down 9% against the Chinese yuan from £1.00:¥10.01. The exception is the Japanese yen, where the rise this year has more than offset falls over the previous decade to leave sterling 4% higher against the yen than the exchange rate £1.00:¥173 on 31 December 2013.

Time to book that holiday to China or Japan?

ICAEW chart of the week: BRICS+

The ICAEW chart of the week returns from its summer holidays to look at the planned expansion of BRICS from five to 11 countries.

Venn diagram showing the G20, G7, BRICS, and BRICS+:

G20 in green, encompassing G7 in teal with USA, Japan, Canada and UK plus in blue with dotted line around Germany, France, Italy and the European Union (the EU members of the G7).

Then five countries in G20, but not in the G7, BRICS or BRICS+, being Korea, Australia, Mexico, Indonesia and Türkiye.

Tne BRICS+ in purple with Argentina and Saudi Arabia followed by BRICS in orange with Brazil, Russia, India, China and South Africa. Still in the BRICS+ purple, but outside the G20 green are Ethiopia, Iran, Egypt and UAE.

Sources: G20, G7, BRICS.

Footnote gives share of global GDP: G20 86%. G7 52% (USA 26%, EU 17%), KAMIT 7%, BRICS 25%, BRICS+ 28%.

“The BRICs” was originally coined by Jim O’Neill in 2001 as an abbreviation for Brazil, Russia, India and China, four fast-growing economies that he predicted would come to dominate the world economy.

This investment shorthand evolved into something more substantive in 2006 when ministers from the four countries got together on the sidelines of a meeting at the UN. Leader summits started in 2009, followed by the addition of South Africa in 2011, which resulted in the capitalisation of the final ‘s’ to form BRICS. 

BRICS has developed over time to become a counterweight to the G7, providing an alternative forum for leaders of these five major nations to discuss common concerns such as economic development, currency stability, climate change, and tackling drug trafficking and organised crime. BRICS has been increasingly important to Russia since its ejection from the G7 (then the G8) following its invasion of Crimea in 2014 and to China as relations with the G7 have deteriorated over the last decade.

The most recent summit (the 15th) was on 22-24 August 2023, at which it was announced that six additional countries would be joining on 1 January 2024 to bring the number of members to 11.

Our chart this week takes the form a Venn diagram to illustrate how BRICS, and the expanded “BRICS+” grouping (pending a new official name), fit with two other major intergovernmental organisations where leaders meet on a regular basis – the G7 and the G20.

It starts with the G20, a grouping of 19 nations and the European Union that together represent 86% of the global economy. Within this sit the eight members of the G7 group of advanced economies, representing 52% of the global economy: the USA (26%), Japan (4%), the UK (3%), Canada (2%), Germany (4%), France (3%), Italy (2%) and the European Union (17% including Germany, France and Italy). The five BRICS nations represent 25% of the global economy comprising: Brazil (2%), Russia (1.7%), India (4%), China (17%) and South Africa (0.4%).

The diagram is complicated by the expanded BRICS+ as although invitees Argentina (0.6%) and Saudi Arabia (1.0%) are also members of the G20, the other four new members – Ethiopia (0.2%), Iran (0.3%), Egypt (0.3%) and the United Arab Emirates (0.5%) – are outside the G20. These new members together represent 3% of the global economy, taking the expanded BRICS+ to 28%.

Squeezed between the G7 and BRICS+ are five G20 members that together make up around 7% of the global economy that are not in either grouping, being (South) Korea (1.6%), Australia (1.6%), Mexico (1.8%), Indonesia (1.4%) and Türkiye (0.8%). As yet there is no sign of an intergovernmental organisation for these “KAMIT” nations to complement the G7 and BRICS, although in practice they are often invited as guests to G7 summits in addition to their participation in meetings of the G20.

The attraction of intergovernmental forums such as the G7, BRICS and the G20 is that they enable national leaders to engage directly with their counterparts on a wide range of topics, in contrast to the often narrower focus and more formal diplomatic structures of treaty-based international organisations such as the Organisation for Economic and Co-operation Development (OECD), the World Bank or the Organisation of American States (OAS) for example.

Their informal nature gives national leaders more flexibility to (for example) change their memberships without lengthy treaty negotiations or to work together on pressing issues of mutual concern. However, that informality also makes it difficult to create binding resolutions, which is perhaps why the global alternative reserve currency proposed at the first BRICS summit in 2009 had still not been implemented by the time of the 15th summit this August. 

Read more: G20G7BRICS.

ICAEW chart of the week: US dollar exchange rates

As the US dollar and euro approach parity, our chart illustrates how the US dollar has soared in value since the financial crisis compared with other major currencies apart from the Chinese yuan.

Step chart on US dollar exchange rates, showing the movements against sterling, the euro and the Chinese yuan between 9 Nov 2007 and 13 Jul 2022:

Sterling: £0.48:$1.00 +75% = £0.84:$1.00
Euro: €0.68:$1.00 +45% = €0.99:$1.00
Yuan: ¥7.41:$1.00 -9% = ¥6.72:$1.00

Source: Bank of England.

Our chart this week is on the topic of exchange rates, illustrating how the US dollar has appreciated by 75% and 45% against sterling and the euro respectively since the financial crisis, only to decline by 9% against the Chinese yuan over the same period.

On 9 November 2007, one US dollar was worth 48p as the pound peaked in value at an exchange rate of US$2.095:£1.00 according to the Bank of England’s exchange rate database. Since then the dollar has appreciated and sterling has fallen to an exchange rate of US$1.195:£1.00 at 13 July 2022, making one dollar worth 84p or 75% more today. This movement reflects a combination of much stronger economic growth in the USA over the last 15 years, higher interest rates, weaknesses in the UK economy, and the position of the US dollar as the world’s reserve currency that makes it an attractive safe haven for investors generally and even more in times of economic turmoil.

The dollar has also appreciated against the euro for similar reasons, albeit by only 45% over the same period. On 9 November 2007, one dollar was worth 68 euro cents when the exchange rate was US$1.468:€1.00, compared with the 99 euro cents it was worth on 13 July 2022 when the exchange rate was US$1.005:€1.00 – having briefly touched parity during the course of that day.

For the poor British traveller this means going to the US is substantially more expensive than it was 15 years ago, with a pound now worth just under a dollar and two dimes, compared with almost two dollars and a dime back then, a whole 90 cents less. The cost of travelling to the EU is also more expensive, with the pound worth €1.18 now compared with €1.43 in 2007, a fall of 17% in relative purchasing power.

All three currencies have depreciated against the Chinese yuan over the same period, as the Chinese economy has continued to grow to become the second largest in the world after the USA. The relative strength of the US economy has restricted the depreciation in the dollar to 9% from being worth ¥7.41 to ¥6.72 over 15 years. This contrasts with a fall of 38% in the value of the euro against the yuan from ¥10.88:€1.00 to ¥6.79:€1.00 and a 48% depreciation in sterling against the yuan from ¥15.52:£1.00 to ¥8.03:£1.00.

Exchange rates are volatile and can move significantly over the course of each minute, hour, day, week, month and year, so the numbers will keep changing. They also don’t reflect the full picture, as inflation, interest rates and economic conditions mean that the value of the dollar, pound, euro or yuan in your pocket will be worth more or less depending on what you want to use it for.

The strengthening of the US dollar over the last 15 years is one of the key elements of the global economic story that has seen the US economy come through the financial crisis and the pandemic in better shape than almost every other developed country. Many commentators believe that this is likely to continue in the near term, especially as Europe is much more directly affected by the Russian invasion of Ukraine.

However, as all professional financial advisers will tell you, past performance is no guide to the future – and your guess about how much one US dollar might be worth in the next fifteen years is likely to be as good as anyone’s.

This chart was originally published by ICAEW.

EU fiscal consultation

Input into ICAEW’s response to the future of the EU Economic Governance Framework.

I recently contributed to ICAEW’s response to a consultation on the future of the EU Economic Governance Framework by Dr Susanna Di Feliciantonio, ICAEW’s Head of European Affairs.

To read more see Susanna’s article about the consultation response.

ICAEW chart of the week: Germany

My chart this week is on Germany, where a new ‘traffic light’ coalition government headed by Chancellor-designate Olaf Scholtz is poised to take charge of Europe’s most prosperous nation.

Map of Germany showing population of 83.2m by state or 'bundesländer': Nordrhein-Westfalen (North Rhine Westphalia) 17.9m, Bayern (Bavaria) 13.1m, Baden-Württemberg 11.1m, Niedersachsen (Lower Saxony) 8.0m, Hessen 6.3m, Rheinland-Pfalz (Rhineland Palatinate) 4.1m, Sachsen (Saxony) 4.1m, Berlin 3.7m, Schleswig-Holstein 2.9m, Brandenburg 2.5m, Sachsen-Anhalt (Saxony-Anhalt) 2.2m, Thüringen 2.1m, Hamburg 1.9m, Mecklenburg-Vorpommern 1.6m, Saarland 1.0m and Bremen 0.7m

With a population of 83.2m and a €3.4tn (£2.9tn) economy, Germany is the largest member of the European Union and the fourth biggest national economy in the world after the USA, China and Japan.

The formal agreement of a red-green-yellow ‘traffic light’ coalition between the centre-left Social Democratic Party (SPD), the Green Party and the liberal Free Democratic Party (FDP) means that Angela Merkel can finally retire as Chancellor to be replaced by SPD-leader Olaf Scholz, the current Vice-Chancellor and Finance Minister in the outgoing ‘Grand Coalition’.

According to the coalition agreement, which is still subject to ratification by the three parties, Olaf Scholtz will become the new Chancellor with the SPD filling six of the 15 federal ministries, the Green party filling five ministries and the FDP filling four. Green co-leaders Annalena Baerbock and Robert Habeck are expected to become Foreign Minister and Economy & Climate Change Minister respectively, while FDP leader Christian Lindner is expected to become Finance Minister.

Despite running the most powerful country in Europe, the new coalition is only responsible for the federal government. As the chart illustrates, Germany has sixteen Bundesländer or federal states, comprising Nordrhein-Westfalen (North Rhine Westphalia) with 17.9m people, Bayern (Bavaria) with 13.1m, Baden-Württemberg with 11.1m, Niedersachsen (Lower Saxony) with 8.0m, Hessen with 6.3m, Rheinland-Pfalz (Rhineland Palatinate) and Sachsen (Saxony) each with 4.1m, the city-state of Berlin with 3.7m, Schleswig-Holstein with 2.9m, Brandenburg with 2.5m, Sachsen-Anhalt (Saxony-Anhalt) with 2.2m, Thüringen with 2.1m, the city-state of Hamburg with 1.9m, Mecklenburg-Vorpommern with 1.6m, Saarland with 1.0m and the city-state of Bremen with 0.7m.

The state governments are also run by coalitions. The now federal opposition Union parties (the Christian Democratic Union and the Bavarian Christian Social Union) lead two- or three-party coalitions in seven states, the SPD lead in seven states, the Greens in one state and Der Linke (the Left) in one state. With a proportional voting system at state and federal levels, coalition government is a way of life in Germany, with parties that are in government in one state being in opposition to each other in others.

Despite being the first three-party coalition at a federal level, with the more complicated negotiations that entails, the coalition agreement has been reached fairly ‘speedily’ by German standards – taking just over two months compared with the six months taken to agree the ‘Grand Coalition’ between the Union parties and the SPD following the last election in September 2017.

The inclusion of the Greens puts climate change at the top of the new government’s priorities, bringing forward the end of coal from 2038 to 2030 for example, while the inclusion of the fiscally prudent FDP will mean limited scope for new government borrowing. Other plans include raising the minimum wage, more defence spending, and legalising cannabis,

To read about the federal budget see my previous ICAEW chart of the week: German federal budget 2022.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK-EU financial settlement update

This week’s chart is on the UK-EU withdrawal agreement financial settlement. Perhaps surprisingly given recent press coverage, ICAEW’s analysis is that it remains roughly unchanged from the Treasury’s 2018 estimate.

Chart on UK-EU financial settlement.

HM Treasury estimate from 2018 of £39bn less £16bn transition = post-transition net payments of £23bn (£19bn approved expenditure not paid + £11bn pension obligations, less £7bn share of EU assets).

Changes since 2018: -£2bn approved expenditure not paid +£2bn pension obligations.

EU 2020 accounts £42bn less forecast UK receipts of £14bn less EIB and other of £bn = Post-transition net payments £23bn (£17bn approved expenditure not paid + £13bn pension obligations - £7bn share of EU assets).

The €47.5bn (£42bn) receivable from the UK included in the recently published EU 2020 accounts caused a kerfuffle last week, as excitement levels grew over what turns out to be a pretty much unchanged estimate for the post-transition element of the UK-EU financial settlement.

ICAEW’s chart of the week attempts to reconcile the £39bn estimate calculated by HM Treasury back in 2018 with the €47.5bn (£42bn) receivable recorded by the EU in its financial statements on 31 December 2020, the last day of the transition period. Perhaps surprisingly, given recent press coverage, ICAEW’s analysis is that the estimate for the post-transition element of the settlement of £23bn remains unchanged overall.

Much of the confusion arises because the £39bn estimate made by HM Treasury in 2018 was a net number, reflecting forecasts of gross payments to the EU by the UK government less anticipated payments by the EU and EU-related institutions back to the UK.

The chart starts by analysing the £39bn estimate into its four main component parts: Net transition payments of £16bn, the UK’s share of approved expenditure not yet paid of £19bn and pension contributions of £11bn less the UK’s share of EU assets of £7bn, with the last three elements amounting to a net £23bn amount to be settled in the post-transition period.

The transition element of £16bn is now in the past, reflecting membership dues for the then anticipated transition period of 1 April 2019 to 31 December 2020 less money coming back from the EU to the UK over the same period. In the end, this turned out to be a couple of extensions in the UK’s period of membership that resulted in a shorter transition period from 1 February to 31 December 2020 – a switch in classification for some of the £16bn from post-EU transition payments to pre-EU exit net membership cost.

The UK’s share of approved expenditure not yet paid of £19bn was also a net number, reflecting a gross amount payable to the EU for ongoing programmes at the end of 2020 less amounts coming back the other way. The OBR has been working to an estimate of €296bn for the balance of approved expenditure not paid (also known as reste á liquider or RAL), which compares with €294bn in the notes to the EU accounts once adjustments were applied to the overall total of €303bn that the EU was committed to spend as at 31 December 2020. 

The calculated receivable of €35bn or £31bn does not reflect an estimated £14bn of payments by the EU to UK participants in these programmes, for example to British universities and research institutions, giving rise to a net amount in the order of £17bn, a couple of billion below the original estimate.

This slightly smaller net outflow is offset by a larger pension liability in the EU accounts, driven by a lower discount rate than originally anticipated. The UK’s €14bn or £13bn share of the €116bn liability is therefore higher than the €12bn or £11bn share of a €96bn liability that was previously forecast. In practice, the value attributable to this balance will change over time given that payments are expected to continue to 2064 or later.

Another area where the EU accounts do not provide the complete story is in the UK’s share of assets it expects to receive back as part of the withdrawal agreement. The €2bn amount in the EU accounts primarily relates to the UK’s share of fines, but it excludes the return of UK shareholdings in EU-related institutions that are owned by member states outside of the scope of the EU consolidated financial statements. Of the £5bn in this category, €3.5bn or £3bn relates to the return of the UK’s share capital in the European Investment Bank.

Despite the numbers being pretty much as expected, there still remains some uncertainty concerning the £23bn post-transition estimate in relation to the calculation of the amounts coming back to the UK, and HM Treasury and the OBR will no doubt continue to refine these estimates over the next few months and years.

The financial settlement is not the end of the UK’s financial engagement with the EU as the government has agreed to participate in a number of EU programmes from 1 January 2021 onwards, for example in Horizon pan-European scientific research, as well as working with the EU on international development programmes funded from the aid budget.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK trade in goods

With less than a month to go before the UK leaves the EU Single Market and Customs Union, trade is high on the agenda as negotiations between the UK and the EU go down to the wire.

UK trade in goods in the year to September 2020: exports £338bn & imports £420bn

EU: £153bn & £230bn
Continuity deals: £49bn & £43bn
USA: £53bn & £38bn
China: £32bn & £54bn
Other: £51bn & £54bn

The #icaewchartoftheweek this week is on international trade, illustrating how exports and imports of goods amounted to £338bn and £420bn respectively in the year to 30 September 2020. This excludes £289bn and £181bn of services exports and imports over the same period that are also extremely important, but which are not the principal subjects of the free trade deal currently being negotiated.

The UK’s largest trading partnership for goods is with the members of the EU Customs Union (together with Turkey for non-agricultural products), with the UK exporting £153bn (45% of total goods exports) and importing £230bn (55% of total goods imports). 

This is followed by a further £49bn (15%) of exports to and £43bn (10%) of imports from 52 countries that have trade deals with the EU that the UK has been able to agree replacement trade arrangements with. These include Norway, Switzerland, Japan, South Korea, Canada and South Africa, with discussions underway to roll-over trade deals with a further 13 countries not included in these numbers, in particular with Singapore and Vietnam.

The UK’s two largest individual trading partners are the USA and China, where the UK will continue to trade on World Trade Organisation (WTO) terms. The UK exported £53bn (16%) of goods to the USA and imported £38bn (9%) in the year to September, while it exported £32bn (9%) to China and imported £54bn (13%).

The balance of goods trade, comprising exports of £51bn (15%) and imports of £54bn (13%), is with over 130 other countries and territories where the UK does not have a trade deal in place for after 1 January 2021, including India, Russia, Vietnam, Taiwan, the UAE, Saudi Arabia, Qatar, Thailand, Singapore, Australia, Malaysia and Nigeria.

Both exports and imports of goods have reduced in the year to September 2020 compared with a year previously, with exports down 7% and imports down 18%. The principal driver of the fall is the coronavirus pandemic, although reconfiguration of cross-border supply chains ahead of the end of the transition period may also be a factor.

Although global trade is expected to pick up in 2021 once covid-19 vaccines are widely available, there is significant uncertainty as to the effect on trade of the UK’s departure from the Single Market and Customs Union – with or without a deal. Either way, increased trade frictions are likely to have at least some impact, while the imposition of tariffs in the event of no deal could cause significant additional problems for key sectors such as car manufacturing and agriculture.

The size and closeness of the EU economy means that it will continue to be the most important trading partner for the UK whatever is agreed. If only we knew on what terms we are going to be trading in less than a month’s time and what the major changes that are coming in January will mean for the future!

This chart was originally published on the ICAEW website.

The £4.4bn cost of preparing for Brexit

17 March 2020: the NAO has provided an analysis of the spending by government departments on preparing for Brexit, highlighting just how significant an exercise leaving the EU is for the government machine.

A recent report by the National Audit Office (NAO) on the cost of EU Exit preparations analysed the £4.4bn spent by government departments in getting ready for Brexit between June 2016 and 31 January 2020.

The NAO is the independent audit body responsible for scrutinising public spending on behalf of Parliament. In its Brexit report, the NAO identified over 300 workstreams with £1.9bn spent on staff, £1.5bn on building new systems and procuring goods and services, £0.3bn on external advice, and £0.6bn in other costs.

Over half of the costs were incurred by three departments, with £871m, £803m, £748m spent respectively by DEFRA, the Home Office and HMRC. This included preparation for new international trade, immigration and customs processes, as well as implementing domestic regulation in areas currently regulated by the EU.

This spending is not the complete total. It does not include costs incurred, for example, of staff only partially working on Brexit or seconded for less than six months, nor local authority preparations not covered by central government funding. It also does not include the net contributions payable to the EU of £8bn during the transition period between 1 February 2020 and 31 December 2020 nor the net financial settlement payable to the EU after that of an estimated £23bn.

The NAO reported that some of the £1.8bn spent between 1 April and 31 October 2019 was spent on no-deal preparation, but that it is not possible to analyse how much of this was wasted (other than the £92m in losses incurred on terminating ferry and other contracts already identified by Whitehall as ‘fruitless payments’ or ‘constructive losses’). This is because many of the preparations will still be needed for when the UK leaves the Customs Union and Single Market at the end of the year.

Spending on advertising and communication amounted to £77m, including £49m spent on the Cabinet Office’s ‘Get ready for Brexit’ campaign, the subject of a critical NAO report in January 2020.

Alison Ring, Director, Public Sector for ICAEW commented: “The NAO has provided a very helpful analysis of the spending by government departments on preparing for Brexit. It highlights just how significant an exercise leaving the EU is for the government machine, with the need for more staff, new regulatory arrangements and new systems and processes across the public sector.

This effort is far from complete, with a huge amount of work still needed to prepare for leaving the EU Customs Union and Single Market in less than nine months’ time.”

The NAO report: ‘The cost of EU Exit preparations’ is publicly available.

This article was originally published by ICAEW.