The Referendum on Separation for Scotland: Scotland's Membership of the EU - Scottish Affairs Committee Contents


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   IbidBack

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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Prepared 27 May 2014