4 Contributions to and receipts from
the EU budget
The rebate
70. One of the most difficult negotiations
of Scotland's separation and membership of the EU is likely to
be on the question of the budgetary rebate. The UK rebate is currently
worth around 3 billion a year;[90]
in 2012 its value to Scotland was approximately 354 million.[91]
The Scottish Government asserts that after separation from the
UK, Scotland could expect to retain a share of the British EU
rebate:
Scotland is likely to be a net financial
contributor to the EU, subject to negotiation on issues such as
the rebate and Scottish take up of EU funding programmes. The
EU budget has been agreed until 2020. We see no reason for re-opening
current budgetary agreements. Prior to 2020, we consider that
the division of the share of the UK rebate would be a matter for
negotiation between the Scottish and Westminster Governments.[92]
However, the UK Government's Scotland
Analysis paper on EU and international issues suggests that,
in the event of separation, the rebate would be automatically
recalculated to take account of the change in circumstances of
the United Kingdom:
The rebate is not a constant, annual
lump sum amount that can be divided or shared. It is a function
of the UK's respective shares in the EU economy and receipts.
Any change in the size of the UK economy and receipts (for example
as a result of Scottish independence) would be automatically reflected
in the rebate calculation, with the new amount relating to the
UK, excluding Scotland.[93]
71. The Minister for Europe told us
that the Scottish Government's claim was unfounded: "The
most charitable explanation is that it is based upon a complete
misunderstanding of how the UK rebate is calculated and embodied
in EU law."[94]
The Minister argued that, far from retaining a 'share' of the
UK rebate, as a separate member of the EU, Scotland would have
to contribute to the rebate like other Member States.[95]
The Minister put the net cost to Scotland of the loss of the rebate
at 2.9 billion (1,100 or £895 per household in
2014 prices) for the seven-year period 2014-2020: 2.3 billion
for the loss of the rebate and 640 million for Scotland's
contribution to the continuing UK's rebate.[96]
72. In order to try and make up the
shortfall, a separate Scotland could seek to negotiate a rebate
of its own. However, as the Minister explained, this would be
extremely difficult:
I can see no circumstance whatsoever,
knowing how tough the budget negotiations were last year, in which
other Member States who are contributing to the UK's rebate would
happily agree to Scotland not only being spared such a contribution,
but then being entitled to a rebate of her own.[97]
The Analysis paper further describes
how no other Member State has ever negotiated a rebate upon its
accession, and that doing so would be extremely difficult: "if
it did, this would necessarily be at the expense of securing particular
treatment in other areas."[98]
Furthermore, according to recent research, all EU Member States
would gain financially from Scotland losing the rebate, with those
most to gain being France (110m per annum) and Italy (85m
per annum).[99] It is
open to question whether they would agree to let Scotland inherit
the UK rebate or negotiate one of its own. Under an Article 48
process Scotland would also be asking the UK to open negotiations
on its behalf and it is hard to believe that the UK would reopen
discussions of budgetary corrections given the unpopularity of
its rebate amongst other Member States.
73. The Scottish Government appears
to misunderstand how the UK's rebate is calculated. In the event
of separation, the UK's rebate would be automatically adjusted
to reflect the change in the UK's circumstances. There would be
no Scottish share to be negotiated as the Scottish Government
erroneously suggests. Instead, Scottish households would have
to make an additional contribution to the EU budget, some of which
would go towards paying the UK's rebate.
CAP payments
74. In the event of separation, the
Scottish Government has stated that it does not propose to re-open
EU budget negotiations. Scottish farmers will therefore be no
better off under a separate Scotland. In fact, there is a risk
that they could be worse off. The amount that Scotland would receive
as a separate Member State would depend on the negotiations on
the terms of its membership. While the recent CAP deal concluded
that all Member States should receive 196 (£159) per
hectare by 2020, the approach taken to new members has been that
CAP receipts are phased in over ten years. Under this scenario,
a separate Scotland could see its CAP receipts cut from the 3.6
billion it receives as part of the UK, to 2.4 billion over
2014-2020. The Minister for Europe told us that it would be "hard
to envisage Member States that do not have 100% access to their
CAP entitlements agreeing that Scotland should over-leap them".[100]
75. The Scottish Government argues that
Scottish farmers receive the third lowest payment rate in the
EU and that, had Scotland been a separate Member State, it would
have seen an increase in the allocation of funds under rules that
guarantee all Member States payments of no less than 196
(£159) per hectare by 2020; Scotland currently receives 130
(£106) per hectare. One reason why Scotland's average per
hectare rate is low is because it includes a payment rate of 20-25
per hectare on vast areas of relatively unproductive land, some
of which is not actively farmed. The payment rate for arable/permanent
grassland is much higher at 200-250 (£163-£203).
76. Exclusion of land that is not actively
farmed from payment, as the Scottish Government argued for in
the latest round of CAP negotiations, would see an increase in
the per hectare rate of payment allocated to productive land.
On the one hand the Scottish Government does not want to see payment
made on unproductive land that is not actively farmed but it is
content to include that land in calculations to suggest its receives
an unfair deal from the UK. Another way of looking at CAP receipts
is in terms of payment per farm. Under this scenario the average
payment per farmer is £25,700 in Scotland, compared with
£17,400 in England, £16,200 in Wales and £7,300
in Northern Ireland. The average annual payment received by Scottish
farmers is also one of the highest in Europe.[101]
The argument that Scottish farmers receive a low share of funding
from the UK is therefore not as clear-cut as the Scottish Government
makes out.
77. As with Structural Funds, should
Scotland's presence within the EU be interrupted, even temporarily
while negotiations on membership take place, CAP receipts would
cease as there would be no treaty authority to pay them. Any continuation
of current levels of support would require funding from the Scottish
national budget of between 550 and 600 million per
annum. However, as mentioned earlier, Scotland's contributions
to the EU budget would also cease during this period.
78. Separation poses clear risks
to Scotland's farmers. The level of funding they would receive
under Pillar I of the Common Agricultural Policy is uncertain.
In the event that Scotland has to accede under the Article 49
process then CAP receipts would cease for any period that Scotland
is outside the EU. The Scottish Government has made no commitment
to maintain levels of funding should this scenario occur. Whatever
the route to membership, there are no guarantees that a separate
Scotland would continue to receive the same level of payments
that it does now. For this to happen Scotland would need to successfully
negotiate that it should receive a higher allocation of receipts
than some existing Member States, notably those that have recently
acceded and had to accept the ten-year phase-in of payments that
Scotland would be seeking to avoid.
79. The Scottish Government should
make clear the potential risks as well as the alleged benefits
of separation. In terms of the CAP, separation would bring no
improvement in funding for Scottish farmers before the end of
this budgetary period in 2020 (anything beyond that is unknown)
and could result in levels of funding being cut or even interrupted.
Structural Funds
80. Structural and Cohesion Funds are
the financial tools the EU uses to implement its policy of reducing
disparity between regions.[102]
The recent deal on the Multi-Annual Financial Framework (MFF)
provides that more than two-thirds of EU funds for the period
2014-2020 are allocated to Structural and Cohesion Funds (SCFs)
and the CAP.[103] The
Scotland Analysis paper states that for the 2014-2020 period
Scotland would have received 567 million under an EU-level
formula if the UK Government had not chosen to use national level
flexibility and increased Scotland's allocation to 795 million.[104]
Scotland currently benefits from a favourable allocation of
Structural Funds by the UK Government that sees it receive an
additional £186 million between 2014-2020. On separation,
this uplift would be lost and, should Scotland's presence within
the EU be interrupted, even temporarily, while negotiations on
membership take place, the payment of any Structural Funds would
cease as there would be no treaty authority to pay them.
Net position of a Scottish Member
State
81. The Scottish Government acknowledges
that a Scottish Member State would be a net contributor to the
EU.[105] In its Scotland
Analysis paper on the EU and international issues, the UK
Government estimates that a separate Scottish state would make
a gross contribution of "around 12.9 billion per year
over the period of the next MFF. As part of the UK, over the same
period, the gross contribution would be 10.0 billion".[106]
The increase of 2.9 billion (1,100 or £895 per
household) is a combination of 2.3 billion for the loss
of the rebate and 640 million for Scotland's contribution
to the continuing UK's rebate.
82. Should Scotland remain part of the
UK its receipts are estimated to be 6.3 billion between
2014-2020 - its current net contribution to the EU over this period
is therefore 3.7 billion. A separate Scotland would lose
the 228 million uplift in Structural and Cohesion funds
allocated by the UK. It could also lose 1.2 billion in CAP
receipts if EU Member States demand that Scotland's direct payments
are phased in over ten years as has happened with the last three
countries to have acceded. Taking into account the loss of the
rebate, a separate Scotland's net contribution to the EU would
therefore be in the region of 6.4 billion in the most optimistic
scenario and 8 billion in the worst case scenario - an increase
of between 2.7 billion and 4.3 billion (1,036-1650
per household or £843-£1343 in today's prices).
83. In the context of the EU budget,
the Scottish Government's plans for separation, even under the
best-case scenario, would leave Scottish households at least £843
worse off. Under the worst-case scenario, that of a separate Scotland
seeing its CAP receipts phased in over ten years (as has been
the case with the 13 most recent Member States), then Scottish
households would be £1,343 worse off than if they remained
part of the UK.
90 HM Treasury Press Release, Chief Secretary to the
Treasury Danny Alexander on Scotland analysis: EU and international
issues, 17 January 2014 Back
91
New Direction, Three EU-related impacts of Scotland leaving
the UK, January 2014 Back
92
Scottish Government White Paper, Scotland's Future: your guide
to an independent Scotland, November 2013, p222 Back
93
HM Government, Scotland analysis: EU and international issues,
January 2014, Cm 8765, p75 Back
94
Q5248 Back
95
Ibid. Back
96
Letter from Rt Hon David Lidington MP, Minister of Europe to the
Chair of the Committee, 30 April 2014 Back
97
Q5247 Back
98
HM Government, Scotland analysis: EU and international issues,
January 2014, Cm 8765, p76 Back
99
New Direction, Three EU-related impacts of Scotland leaving
the UK, January 2014, p11. Back
100
Q5232 Back
101
HM Government, Scotland analysis: EU and international issues,
January 2014, Cm 8765 Back
102
Europa website, glossary Back
103
HM Government, Scotland analysis: EU and international issues,
January 2014, Cm 8765, p76 Back
104
This equates to an additional 228 million or £186 million Back
105
Scottish Government, Scotland in the European Union, November
2014 Back
106
HM Government, Scotland analysis: EU and international issues,
January 2014, Cm 8765, p77 Back
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