Category: ICAEW chart of the week

Ross Campbell, Director for the Public Sector for the ICAEW, writes:

“This week’s chart continues the Brexit theme by looking at where the money that we pay to the EU is spent.

It shows how Germany, the UK, France and Italy are the largest contributors, with roughly 79bn euros going into the EU pot, while they receive only about 44bn euros of that back.  The majority of their net contributions go toward post-2000 EU members, principally in eastern Europe, while pre-2000 countries such as the Netherlands, Sweden, Denmark and Austria which also pay in more than they get back are substantially balanced by countries such as Spain, Greece, Portugal and Belgium who are net recipients.

Only a relatively small proportion of the UK’s net contribution goes toward the cost of running EU institutions, agencies and programmes. Instead most of the net contribution actually ends up being spent further east, on economic development programmes in Poland, the Czech Republic, Romania, Hungary and Bulgaria. Consequently the focus on how much the UK is going to contribute to agencies such as Europol or the European Space Agency, or to programmes such as Erasmus, is really missing the point – these are small amounts compared to economic development funding for eastern Europe.

It is worthwhile observing that these countries are now NATO allies and all of them made commitments to increase defence spending on the basis of national budgets that assumed continued funding from the UK via the EU. It is also worth observing that with increased tensions between NATO and Russia – it may well be in the UK’s strategic interest to continue to support increased defence spending in eastern Europe.”

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Ross Campbell, Director for the Public Sector for ICAEW, writes:

“With the UK-EU negotiations rumbling on in Brussels, this week’s chart shows the range of likely scenarios that the ICAEW has modelled for the exit charge.

The softening in tone from Downing street following the Prime Minister’s speech in Florence last week, leads us to the conclusion that the ‘high’ scenario now appears to be a more likely outcome.  The speech proposed that UK would seek a transition period after the UK’s departure from the European Union on 30 March 2019. This should run for a period of at least 21 months until the end of 2020, covering the remainder of the EU’s 2014-2020 multi-year financial framework (MFF).

The statement that no country would pay more or less towards the EU Budget indicates that the UK now expects to contribute to the EU on the same basis during the transition period up until the end of 2020 as if it had remained a member. It also implies that the UK has accepted that it will need to contribute towards spending authorised before 2020 that will be paid out in the years after 2020. For example, for years 4 to 10 of a ten-year research grant authorised and starting in 2018.

Our Chart of the Week comes from our report ‘Analysing the EU exit charge’, which sets out the different components of the exit charge in a short digestible summary document. It can be found at:

http://www.icaew.com/technical/economy/brexit/analysing-the-eu-exit-charge.

 One question not yet answered is how much the UK will need to contribute for a longer transition period that extends into 2021 or further, nor to the financial arrangements in order to participate in EU agencies and programmes in the longer-term. So even if both sides can wrap up a deal on the exit charge soon, there remain several more financial negotiations to conduct in the months to come.

Of course, as we all know when it comes to negotiations – nothing is agreed until everything is agreed! “

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Ross Campbell, Director for the Public Sector for ICAEW, writes:

“With the discussion in politics once again turning to the size of the saving that the UK will make when it stops paying contributions into the EU, this week’s chart is a reminder of what we currently pay and what we get back from the EU.

It is certainly worth noting that while the UK is a net contributor to the EU, both the gross contribution of £290m per week and the net contribution of £165m a week – what actually leaves the UK- are substantially smaller than the £350m a week claimed saving.

What is also worth bearing in mind is that the annual net contribution of approximately £8.6bn is really only about 1% of UK annual government expenditure.”

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Ross Campbell, Director for the Public Sector for the ICAEW, writes:

“This week’s ‘Chart of the Week’ shows two things.

First, that when the government talks about net borrowing, it doesn’t actually include everything that gives rise to an increase in the Government’s debts.  This is a statistical convention, but we accountants tend to think it is misleading as it under-represents the extent to which the country is living beyond its means.

Two, and more importantly, that the UK state is still spending significantly more than it earns in tax and other revenues.  It’s all very well calling for increases in public spending, but as existing spending is not currently covered by revenues, spending more creates an even bigger long term problem (with interest!) in the form of a growing debt burden. All that does is delay the difficult decisions about whether to raise taxes or cut spending to levels we can afford, all the while putting ever more pressure on public spending as the interest bill goes up.

As business people we know that the state is not a business, but in the long run similar rules apply and if it was a business, then it would be running at an ever increasing loss. We really need to improve financial management in government.”

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Ross Campbell, Director for the Public Sector for ICAEW, writes:

“Here is the latest Chart of the Week from the ICAEW.

This week’s chart shows that public debt has tripled over the last decade.

While economic growth has been at historically low levels over the last decade, reducing tax receipts, government borrowing has rocketed in order to keep paying for public services and social welfare. 

With the average life of borrowing now out to 18 years, as long as the government is still able to borrow, we won’t have to settle our debts anytime soon but we do have to pay the interest on all of this debt.  Let’s hope interest rates stay low!”

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