You are here: Parliament home page > Parliamentary business > Publications and Records > Committee Publications > All Select Committee Publications > Commons Select Committees > European Scrutiny > European Scrutiny
Documents considered by the Committee on 10 July 2019 Contents

3EU Budget 2020

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Treasury Committee

Document details

Statement of Estimates of the European Commission for the financial year 2020.

Legal base

Article 314 TFEU; special legislative procedure; QMV

Department

Treasury

Document Number

(40664), 7098/19

Summary and Committee’s conclusions

3.1In June 2019, the European Commission published the draft European Union budget for 2020 (formally known as the ‘Statement of Estimates’).

3.2For that year, the Commission has proposed new EU spending commitments totalling €168.3 billion (£150.6 billion), and actual payments to recipients of EU funding amounting to €153.7 billion (£137.5 billion).14 This will be the final budget of the EU’s ‘Multiannual Financial Framework’ (MFF) for 2014–2020, which was agreed between Member States in 2013 to set spending limits for the six major areas of the EU budget.15 The 2020 budget therefore contains the last spending commitments to be made as part of the EU’s current crop of programmes like the Horizon 2020 research programme, the Regional Development Fund and the Common Agricultural Policy as agreed in 2013. From 2021, the EU budget will be used to implement a new set of sectoral programmes and instruments under the next Multiannual Financial Framework that will run until 2027. The Commission tabled a proposal for the EU’s overall spending limits, and for individual spending programmes like the CAP, for that period in spring 2018. Discussions in Brussels on those remain in full swing.16

3.3The Commission’s Statement of Estimates for 2020 is a draft budget only. The overall size of the budget, and how it is divided between different programmes and policy areas, will need be agreed between the Member States and the European Parliament, who are likely to carry out intense negotiations this autumn. In recent years, under pressure from national governments, the final budget has consistently been smaller than originally proposed by the Commission. We have assessed the substance of the draft budget for 2020 in more detail in paragraphs 7 to 14 below.

3.4Whether or not the UK will be contributing to the 2020 EU budget is a matter of debate. In March 2017, the Government formally triggered the process for withdrawal from the European Union under Article 50 TEU, and in April 2019 it agreed to set the UK’s ‘exit date’ for 31 October 2019 (which is now the legal default unless a further extension of the UK’s EU membership is agreed, or the Article 50 notice is revoked). Until that day, the Treasury will continue to make its normal monthly payments into the EU budget as a condition of EU membership.

3.5However, irrespective of when the UK formally withdraws from the Union, the remaining Member States have insisted the Government pay for certain financial commitments to Union that have built up while the UK has been a member (including a share of the 2014–2020 Multiannual Financial Framework). The resulting ‘Brexit bill’ in the draft Withdrawal Agreement, initially estimated by the Treasury to have a net cost of approximately £39 billion, has been a major, and controversial, element of the Brexit negotiations. The Agreement has of course been rejected thrice by the House of Commons, meaning there is not yet an agreed UK-EU financial settlement. However, the European Commission has said it would expect the UK to “honour its financial commitments” as a “precondition” for further talks on a future economic partnership even if the UK leaves on 31 October without an exit treaty in place.17 Despite our repeated requests, the Government has not provided clarity on what it believes the UK’s financial obligations to the EU would be in a ‘no deal’ scenario.18

3.6Overall, it therefore remains unclear at this stage whether or not the UK will contribute to the EU budget in 2020. We discuss this in more detail in paragraphs 17 to 29 below.

The substance of the draft EU budget for 2020

3.7As noted, the draft budget for 2020 would allow the EU to commit to spending of €168 billion, up by just over 1 per cent compared to the 2019 budget agreed in December last year. This would be equivalent to 2 per cent of all public spending in the EU with the UK included, or just shy of 1 per cent of the Union’s collective Gross National Income.

3.8As was the case in 2019, the single largest area of EU expenditure in 2020 would be cohesion funds for economically underdeveloped parts of the Union (with a proposed budget of €58 billion). Funding for farming subsidies under the European Agricultural Guarantee Fund, a major part of the Common Agricultural Policy, would total €42 billion. In addition, the Commission has recommended to boost the available funding for the ‘Horizon 2020’ research programme to €13.2 billion, a 6 per cent increase compared to 2019. A separate pot of €255 million would be set aside for the development of new military technology under the EU’s new Defence Industrial Development Programme (EDIDP). In addition, the Commission has proposed that one-fifth of all the EU’s spending in 2020 should go towards projects that relate to climate change. The Commission has provided an overview of its most high-profile spending proposals for 2020 in a separate factsheet.

The ‘Security and Citizenship’ heading of the budget

3.9One area of EU spending facing particular challenges is the ‘Security and citizenship’ area, formally ‘heading 3’ of the EU budget, which funds programmes like the Asylum, Migration & Integration Fund (AMIF)19 and the Internal Security Fund (ISF),20 as well as the European Border and Coast Guard Agency (usually known by its former name, FRONTEX). Under the spending limits of the Multiannual Financial Framework (MFF) for 2014–2020 agreed in 2013, ‘heading 3’ would have a total budget over that period of €15.7 billion21 (£14 billion). However, because of the scale of migration flows into the EU in recent years, and continued political instability in nearby countries like Syria and Libya, this original expenditure ceiling has proven to be insufficient to cover the costs of the demands being placed on the relevant European support instruments and bodies.22

3.10As a result, the Commission has proposed the use of the ‘Flexibility Instrument’ for migration and border control measures every year since 2015; this is a special mechanism allowing the EU to commit to spending exceeding the limits set out in the MFF. For 2020, the Commission has asked for €778 million (£697 million) from the Instrument to the Security & Citizenship heading, taking its total budget for that year to €3.7 billion (an increase of nearly 30 per cent compared to the €2.9 billion limit foreseen by the MFF).23 The additional funding would almost cover the total proposed commitments for the Internal Security Fund and FRONTEX for 2020.24 The proposed top-up funding for ‘heading 3’ for next year is slightly lower than in the 2019 budget, when EU spending in this area was increased by €985 million beyond its MFF limit.25 In total, the Flexibility Instrument has been used to increase available resources for the EU’s security and migration related measures by at least €2.4 billion (£2.1 billion) since 2015.

3.11The precise financial implications for the British taxpayer of the EU’s spending plans in this area are unclear. Because of its legal opt-out from certain EU justice & home affairs and Schengen border control measures under Protocols 19 and 21 to the Treaties, the UK does not participate in the Internal Security Fund and it is not generally part of FRONTEX’s activities (except on a case-by-case basis).26 Moreover, under Article 5 of Protocol 21, the UK should “bear no financial consequences” for any “[justice and home affairs] measure” by which it is not bound. Given the significant overshoot of the MFF limit for EU spending in this area, including a budget of €500 million for the ISF and of €420 million for FRONTEX, we are seeking to clarify what the UK would be expected to pay towards expenditure on those components if it were to be a contributor to the EU budget in 2020 (see paragraphs 17 to 29 below).

The Government’s position on the draft EU budget for 2020

3.12The Chief Secretary to the Treasury (Rt Hon. Elizabeth Truss MP) submitted an Explanatory Memorandum on the draft EU budget for 2020 on 26 June 2019. With respect to the substance of the Commission proposals, the Minister notes that “the Government has been clear that it wants to see real budgetary restraint in the EU”, and is therefore “committed to continue to work hard to limit EU spending, reduce waste and inefficiency, and ensure that where EU funds are spent they deliver the best possible value for money for taxpayers”. She does not refer to the use of the Flexibility Instrument to increase funding for the ‘Security and Citizenship’ heading by nearly €800 million in 2020.

3.13With respect to the potential financial implications of the 2020 EU budget for the UK, the Memorandum refers to the draft Withdrawal Agreement—thrice rejected by the House of Commons—under which the UK would “participate in the EU’s annual budgets in 2019 and 2020, covering the […] remainder of the Multiannual Financial Framework”. It notes that, in that scenario, the UK’s post-rebate financing share of EU expenditure in 2020 is estimated at 11.4 per cent.27 The Minister does not comment on the possible financial implications if the UK leaves without a Withdrawal Agreement in place.

3.14We have discussed the 2020 EU budget in the context of Brexit in more detail in paragraphs 17 to 29 below.

Next steps in the EU budgetary process for 2020

3.15As noted, the EU’s annual budget is subject to approval by both the European Parliament and the EU’s Member States. The latter must agree to the spending plans by qualified majority, meaning no single EU country has a veto.28 The Member States are due to establish their initial position on the Commission’s proposals for 2020 on 24 July 2019,29 which will be discussed with representatives of the Parliament’s Budgets Committee before the end of that month. MEPs will then prepare and adopt their position in the autumn, with a final stretch of negotiations between the Council and Parliament to take place from late October to mid-November. Formal adoption of the 2020 EU budget is foreseen for the end of November.

3.16To complicate the budgetary process further, the European Commission may also need to prepare additional amendments to the draft budget in the autumn in the event of a ‘no deal’ Brexit. Changes would be necessary to take into account the UK’s withdrawal from the EU if it becomes clear it will not be making contributions in 2020 as foreseen by the Withdrawal Agreement or under a last-minute ‘no deal’ arrangement. Those would have to be incorporated into the negotiations between MEPs and Member States as and when they are available. We have considered the potential ramifications of Brexit for the 2020 EU budget (and the possible financial implications of that budget for the UK taxpayer) in more detail below.

The implications of Brexit for the 2020 EU budget

3.17When the UK ceases to be a Member State, it will also automatically lose its obligation under EU law to make contributions into the EU budget. The general implications of Brexit for the EU’s finances are essentially two-fold:

3.18With respect to the first element, as we noted in our Report of 18 July 2018 the UK’s decision to withdraw from the EU generated a number of spending proposals related specifically to Brexit.30 In particular, the relocation of the European Banking Authority (EBA) and the European Medicines Agency (EMA) away from London to Paris and Amsterdam respectively saw the need for some additional financial support to those two bodies. The draft EU budget for 2020 notes that the EMA in particular will need €6.2 million (£5.5 million) of additional funding, after it was unable to terminate its lease in Canary Wharf and has had to provide “financial inducements” to secure a sub-tenant for its former building.31 For the EBA, the budget foresees a €2.1 million (£1.8 million) grant to fund its move into its new premises in La Défense in Paris. Overall, direct EU spending plans triggered by Brexit has therefore been fairly limited.32

3.19The potential longer-term repercussions of Brexit for the revenue side of the EU budget (and, by extension, for its general spending plans overall) are much more significant. Article 310 TFEU requires “revenue and expenditure shown in the [EU] budget [to] be in balance”, meaning that any loss in revenue—i.e. the UK contribution—would need to be addressed immediately. Given the UK’s position as a net contributor, any cessation in its payments into the EU budget from ‘exit day’ on 31 October onwards would require significant adjustments. In practice, this would necessitate cuts to EU spending, increased payments by the remaining Member States, or both. A complicating factor is that the EU’s high-level spending plans for the entire 2014–2020 period were established in 2013 (under the Multiannual Financial Framework), four years before the UK formally triggered the withdrawal process. This means that last-minute adjustments would be necessary to spending plans that may have been in place for a number of years, in many cases with legally-binding funding commitments already made.

3.20To avoid the need to cut spending or for the remaining Member States to contribute more money, the EU has insisted consistently that the UK—irrespective of its date of withdrawal—“must honour its share of the financing of all the obligations undertaken while [the UK] was a member of the Union”.33 In July 2017 the then-Secretary of State for Exiting the EU (Rt Hon. David Davis MP) told Parliament that the Government “recognises that the UK has obligations to the EU […] that will survive the UK’s withdrawal”, and that “these need to be resolved”. In December 2017, the Treasury announced both sides had agreed on the terms of a Brexit financial settlement in the infamous Joint Report. This was subsequently translated into a draft Treaty text by March 2018 as part of the overall Withdrawal Agreement between the UK and the EU.34

UK contributions to the 2020 EU budget if the Withdrawal Agreement is ratified

3.21As has been set out in more detail elsewhere,35 this Brexit financial settlement—if the Withdrawal Agreement is ratified—would require the UK to pay into the EU budget as if it were still a Member State from the date of its withdrawal until 31 December 2020 (the end of the EU’s broad spending plans under 2014–2020 Multiannual Financial Framework). As a result, if the exit treaty is approved by the House of Commons, the UK would be expected to pay in its full contribution for the 2020 EU budget which we discussed above. In those circumstances, the European Commission foresees a gross UK contribution for 2020 of €18.5 billion (£16.6 billion), including the annual rebate estimated at €5.3 billion (£4.8 billion).36

3.22In addition, the UK would pay for a share of the Reste à Liquider (RAL)—the EU’s unpaid spending commitments, made under the 2014–2020 MFF but outstanding as of 1 January 2021—and towards other liabilities such as pensions for staff of the EU institutions. The UK would also receive certain assets back, such as its paid-in capital with the European Investment Bank. There would be no UK obligations with respect to new EU spending plans under its next Multiannual Financial Framework, which is due to take effect in January 2021.

3.23In January 2018, the Treasury estimated the total net cost of the settlement to the British taxpayer—taking in the 2019 and 2020 EU budget, a share of the RAL as at 1 January 2021, and a contribution towards the EU’s other liabilities—would be in the range of £35 to £39 billion. However, the final figure in relation to the UK’s share of the costs of the 2014–2020 MFF would be lower after the extension of the UK’s membership of the EU until October 2019.37 In any event, the figure remains uncertain and could fluctuate depending on a number of factors.38

The possibility of UK contributions to the 2020 EU budget without a Withdrawal Agreement

3.24The draft Withdrawal Agreement and the proposed financial settlement have, of course, been thrice rejected by the House of Commons. If the Agreement is not ratified, and no further action is taken to extend the UK’s membership of the EU, there would be no legally binding agreement for the Treasury to making contributions to the EU beyond 31 October 2019 (including the 2020 budget). However, it cannot be ruled out definitively at this stage that the Government could nevertheless end up making such contributions. That would be the case under a number of different scenarios (or a combination thereof):

3.25The last scenario is the one for which the EU is actively preparing, given the possibility that the UK will leave the EU on 31 October without a Withdrawal Agreement in place. As we discussed in our Reports of 13 March and 3 April 2019, the remaining Member States are putting in place a contingency ‘no deal’ Regulation that effectively asks the UK to make payments into the EU budget for November and December 2019, even as a non-Member State. In return for continued contributions, UK recipients of EU funding approved before 31 October would be paid from the EU budget until the end of the year.39 (These ‘no deal’ payments would not create an overall transition period like the one contained in the Withdrawal Agreement, under which the UK would stay in the Customs Union and Single Market for some time after formally leaving the EU).

3.26The Government abstained when the EU’s Brexit Budget Regulation was voted on by EU Ministers in the Council on July 2019, despite having the power to veto the proposal while the UK remains a Member State.40 This means the Regulation was adopted and will become EU law. However, it is important to note that the contingency measure, even if approved by the Council, cannot oblige the Government to pay into the EU budget beyond a ‘no deal’ Brexit. It would take effect only after the UK had already ceased to be a Member State (when, by definition, EU law would no longer be binding). It is clear the EU intends to exert political pressure for the UK to continue making its budget contributions irrespective of what happens with the Withdrawal Agreement. In April 2019, the European Commission said explicitly that the EU would not negotiate with the UK on new measures to address any disruption caused at Dover and Calais by the UK’s departure from the Customs Union and the Single Market, unless the “precondition” of a financial settlement had been agreed.41

3.27While the Government itself has said that the UK would have financial obligations to the EU which would ‘survive’ its withdrawal in any event, it has so far refused to clarify whether it would agree to the EU’s request for continued contributions even in a ‘no deal’ scenario. This will be a matter for the next Prime Minister to consider after taking office later this month. If he were to decide the UK should make further payments into the EU budget beyond its withdrawal, for example to facilitate negotiations on a new trading relationship, he would need the approval for such payments from the House of Commons. This is so because the current authority under the European Communities Act 1972 for payments to the EU budget would have fallen away on ‘exit day’,42 requiring new statutory authority for any further contributions to be paid.43

3.28The EU is clearly minded to conclude its 2014–2020 budgetary cycle with full UK contributions, irrespective of its exit from the Union. The draft budget for 2020 explicitly foresees full participation by the UK as both a contributor and recipient. Although the Brexit Budget Regulation described in paragraphs 25 and 26 above only covers the 2019 financial year (since the 2020 budget, and by extension the putative British contribution, is yet to be definitively established), it seems likely to ask the Treasury to make contributions for the whole of next year as well.44 The lack of clarity from the Government about the possibility of contributions to the remainder of the 2019 EU budget after a ‘no deal’ exit on 31 October means it is, for the time being, impossible to definitively rule out such payments to the 2020 budget (which would otherwise have been covered by the financial settlement in the Withdrawal Agreement).

3.29In June 2019, the EU’s Budget Commissioner—Germany’s Guenther Oettinger—indicated that the Commission would seek to adjust the 2020 EU budget this autumn if it became clear the UK would not be making any further contributions beyond 31 October. The scale of any such changes—and how they would combine spending cuts with increased contributions for the remaining Member States—is not clear.45

Our conclusions

3.30The UK’s contribution to the EU budget, which stood at £6.51 billion in net terms in 2017,46 has for decades been one of the most controversial elements of our membership of the European Union. Given the prominent role played by the size of the UK contributions in the EU referendum campaign, Brexit has, in many ways, brought that issue even further to the forefront.

3.31As part of an overall settlement under the draft Withdrawal Agreement, the Government in 2017 accepted the demand of the remaining Member States that the UK pay its contributions into the EU until the end of the current Multiannual Financial Framework in December 2020, even if it were no longer a full Member State. However, political support for that decision has been lacking, as shown by the triple rejection of the Agreement by the House of Commons earlier this year.

3.32The possibility of a ‘no deal’ Brexit has not eliminated the question of continued UK contributions to the EU budget. As far back as July 2017, the first Secretary of State for Exiting the EU (Rt Hon. David Davis MP) stated that the UK had ‘survivable’ financial obligations to the EU beyond its formal withdrawal. What is unclear is what the Government believes those “obligations” are, or how it would intend to resolve them with the EU in a ‘no deal’ scenario (when by definition the financial settlement contained in the Withdrawal Agreement does not take effect).

3.33The EU, on the other hand, has been clear that it intends to pursue the UK for a comprehensive financial settlement even if it leaves without a Withdrawal Agreement. The remaining Member States have now put in place a detailed legal framework requesting British payments towards its 2019 budget until the end of this year in a ‘no deal’ scenario. Since the draft exit treaty also foresees full UK contributions into the EU budget for 2020 as if it were still a Member State, the draft budget for that year—put forward by the Commission in June 2019—sets out spending plans and estimated revenue on that basis. However, the EU’s Budget Commissioner has conceded amendments would be necessary if it became clear this autumn the UK would not pay, to ensure the EU’s revenues and spending are in balance. That would require painful political compromises, involving both spending cuts and increased contributions by the remaining Member States.

3.34What the UK may end up contributing to the 2020 EU budget depends very much on, firstly, where there will be a legal requirement for it do so (i.e. the Withdrawal Agreement is ratified; the Article 50 period is extended further into 2020; or the Article 50 notification is revoked). If none of those eventualities come to pass—the ‘no deal’ scenario—whether there are contributions in 2020 very much depends on the actions taken by the Government with Parliament’s support. If the new Prime Minister were to accept the request for payments until the end of 2019 as set out in the EU’s contingency proposal following a ‘no deal’ Brexit, we consider it likely a similar demand will be made in relation to the 2020 EU budget. Under the draft budget put forward by the Commission, there would be a gross British contribution estimated to total €18.5 billion (which would be off-set against continued flow of EU funding to UK public and private sector organisations in 2020).47

3.35What would happen if the Government—or the House of Commons—rejects the EU’s request for further contributions following a ‘no deal’ Brexit, is less easy to envisage. In such a scenario, the European Commission has indicated it would seek to shrink the 2020 EU budget to take into account the loss of the UK’s financial contributions. Since that would disrupt the EU’s long-term spending plans under the 2014–2020 Multiannual Financial Framework (and therefore the total expenditure before 31 December 2020, on which the financial settlement in the Withdrawal Agreement is predicated), it is not clear how that could affect the scope of any future settlement to resolve what the Government has called the financial obligations to the EU “that will survive the UK’s withdrawal”.

3.36Moreover, ending the UK’s contributions to the EU budget immediately is likely to have significant political implications. If there are no further contributions, the Government could redirect money provisionally earmarked for EU payments to increase domestic investment, and to cushion the impact of a ‘no deal’ Brexit on the most exposed economic sectors. However, it is also likely to impact on the UK’s post-Brexit relationship with the EU in several ways:

3.37Given the above, the question of any further payments to the EU in a ‘no deal’ Brexit eventuality is clearly something the House will want to follow closely. We reiterate that the Government would need to secure the appropriate parliamentary authority for any such contributions (should it decide it was in the UK’s interest to make them). We also recommend that any such authorisation should be sought—at the very least—by a Statutory Instrument made under the affirmative procedure, and preferably by Act of Parliament.

3.38The uncertainty about the UK’s participation in the 2020 EU budget may, ultimately, come at a cost to the British taxpayer. As we have noted, it remains a possibility that the UK will pay its full contribution in 2020. However, we fear the Treasury is likely to be largely side-lined during the negotiations on the size and priorities of the 2020 EU budget, precisely because it is unclear whether the UK will contribute. Although the Government would not have had a veto over the 2020 budget in any event, since it is adopted by qualified majority, we believe there is still a significant risk that the UK’s preferences are not reflected in the final spending plans.

3.39In particular, the substantial allocation from the Flexibility Instrument for the EU’s security and border-control policies—€778 million, on top of nearly €1 billion in 2019—shows that the Government’s insistence on “budgetary restraint” is not being heeded. We therefore ask the Chief Secretary to the Treasury, in her next update on the 2020 EU budget, to:

3.40We retain the draft EU budget for 2020 under scrutiny, in light of the uncertainty about its financial implications for the UK taxpayer. We ask the Chief Secretary to keep us informed of further developments in the budgetary negotiations between the Commission, Council and European Parliament in due course. Separately, we will continue to press the Government for more clarity about its position on the possibility of payments into the EU budget after a ‘no deal’ Brexit once the new Prime Minister is in office. We will be considering the state of play in the negotiations for the EU’s Multiannual Financial Framework 2021–2027 separately in the coming months, as they are likely to shape the form of cooperation between the UK and the EU in the longer term, for example in areas as varied as scientific research, customs and tax, development assistance and space.

3.41We draw these developments to the attention of the Treasury Committee, given its interest in the Brexit financial settlement and its cost to the Exchequer.

Full details of the documents

Statement of Estimates of the European Commission for the financial year 2020: (40664), 7098/19.

Previous Committee Reports

None. We published our last Report on the 2019 EU budget in January 2019. See (39886), 10365/18, COM(18) 600: Fiftieth Report HC 301–xlix (2017–19), chapter 11 (9 January 2019).

14 The EU budget is ‘differentiated’: funding commitments can be made in one year but remain partially or wholly unpaid until some years later. In the context of the EU ‘commitments’ refers to the funding that can be agreed in contracts in a given year; ‘payments’ to the money actually paid out.

15 The six major areas of the EU budget for which the MFF sets spending limits are ‘Smart and Inclusive Growth’ (including cohesion and regional development funding); ‘Sustainable Growth’ (including the Common Agricultural Policy); ‘Security and citizenship’ (including the EU’s Border & Coast Guard Agency); ‘Global Europe’ (including the EU’s Pre-Accession and Neighbourhood Instruments); ‘Administration’ (for the running of the EU institutions) and ‘Compensations’ (A temporary facility designed to ensure that Croatia, which joined the EU in July 2013, did not have to contribute more to the EU budget than it benefits from it in the first year following its accession).

16 With respect to the EU’s long-term financial planning for 2021–2027, the European Council of 20 June 2019 committed to “an exchange of views in October 2019, aiming for an agreement before the end of the year”. See for more information on the MFF for 2021–2027 our Report of 12 September 2018.

17 See Commission document COM (2019)195, “Addressing the impact of a withdrawal of the United Kingdom from the Union without an agreement: the Union’s coordinated approach“ (10 April 2019).

18 See for more information our Reports of 13 March and 3 April 2019.

19 AMIF, established for the 2014–2020 period with a budget of €3.1 billion, aims to “promote the efficient management of migration flows and the implementation, strengthening and development of a common [EU] approach to asylum and immigration”. It provides support for Member States implementing EU migration legislation; measures to integrate immigrants into their new community; returns for ‘irregular migrants’; and efforts to distribute people like asylum seekers fairly across Member States, and not just in countries like Greece and Italy.

20 The ISF supports the implementation of the EU’s Internal Security Strategy, law enforcement cooperation and the management of the EU’s external borders (including the European Border and Coast Guard Agency Frontex).

21 2011 prices.

22 In 2017, the Member States therefore allowed unused money in the EU budget from other policy areas to be used to increase funding for security and migration measures. This “Global Margin for Commitments” allows the EU to increase planned spending for measures related to “growth and employment, in particular youth employment” and for “migration and security measures” by drawing on unused commitments in other areas of the EU budget below the applicable expenditure ceilings. See Article 14 of Regulation 1311/2013, as amended.

23 The annual limits by budget heading are set out in 2011 prices in the 2013 MFF Regulation. The ceiling in current amounts is calculated by applying a 2% deflator for every subsequent year.

24 The Commission has proposed a combined budget for commitments in 2020 for the ISF and Frontex amounting to €921.5 million (£825.1 million), 25 per cent of the total budget for ‘heading 3’.

25 See for example Decisions 2019/276/EU, 2018/8E/EU, 2017/342/EU and 2015/2248/EU.

26 When Frontex was first established in 2005, the UK sought full membership, but was excluded on the grounds that the UK does not participate in the border control elements of the Schengen agreement.

27 It is not possible to calculate the exact level of contributions for 2020 in advance, as payments will depend on actual budgetary outturn and the nature of any UK contributions depends on the wider Brexit process.

28 This is in contrast to the procedures governing the adoption of the EU’s Multiannual Financial Frameworks, where each Member State does have a veto. The UK has abstained on each annual EU budget since 2015.

29 This decision could be taken by the Committee of Permanent Representatives (COREPER) or by a formal meeting of EU Finance Ministers (ECOFIN).

30 The UK’s withdrawal also led to some spending cuts, in particular for the EU institutions (to take into account the reduction in the number of MEPs and Commissioners, and to close the European Commission’s offices in London, Cardiff and Edinburgh). See for more information the Commission’s draft amending budget 4/2019 of 2 July 2019.

31 The EMA is part-funded from the EU budget, but also has an income stream by charging fees to pharmaceutical companies. The Commission’s draft budget notes that “the EU balancing contribution to EMA is €6.2 million above the financial programming for 2020, to cover the full financing of the €62 million of financial inducements to the sub-tenant for the period 2019–2020, as set out in the building file for the London building presented to the European Parliament and the Council in March 2019”.

32 The EU is also planning EU investment in a new shipping route between Ireland and the continent under the Connecting Europe Facility to allow some freight transports to by-pass the UK more easily, and in 2019 provisionally earmarked €10 million for the creation of an EU ‘delegation’ (embassy) in London. However, following the extension of the Article 50 period those plans are currently on hold as the UK is now a Member State for longer than initially anticipated.

33 The European Commission’s position paper on the financial settlement was its first negotiating document to be published, in June 2017.

34 With respect to the UK’s withdrawal, the Commission’s draft budget for 2020 notes that the EU has had to “cope with a number of unexpected crises” in recent years, including “unprecedented migration crisis”, “tensions in global trade”—an oblique reference to the trade policies of the current American administration—and “the United Kingdom’s notification of intent to leave the EU”.

35 See for example the National Audit Office report, “Exiting the EU: The financial settlement—follow-up report“ (29 November 2018).

36 The final net UK contribution would depend on the amount of EU funding UK-based entities received back over the course of 2020. In 2017, the European Commission estimated the UK’s net contribution to be €7.43 billion (£6.51 billion).

37 The extension of the Article 50 period means that the UK is contributing to the EU budget from April to October 2019 as a full Member State, and not as an ex-EU country under the terms of the Withdrawal Agreement as originally envisaged. Therefore, payments made during that time would be deducted from the size of any post-Brexit settlement.

38 For example, the size of the settlement would depend on the amount the EU chooses to spend in 2020; the euro-sterling exchange rate; and the crystallization of any of the EU’s contingent liabilities. Moreover, if the post-Brexit transitional period foreseen by the Withdrawal Agreement were to be extended beyond 31 December 2020, the UK would have to pay additional money to the EU (the amount of which would have to be determined by July 2020) on top of the existing financial settlement.

39 The Regulation also provides for the right of UK-based recipients to bid for new EU funding in November and December despite being outside the EU, but given the short timeframe and the lack of a resolution in relation to the 2020 budget means this likely to be of limited practical use.

40 The Regulation asking for EU budget contributions even beyond a ‘no deal’ Brexit is based on Article 352 TFEU, which requires unanimity in the Council. As such, every Member State has a veto.

41 The same would apply, the Commission said, to the issue of citizens’ rights and the ‘backstop’ for the UK-Ireland border.

42 We presume here that the Government would commence section 1 of the European Union (Withdrawal) Act 2018 as of ‘exit day’, repealing the European Communities Act 1972.

43 On 25 February 2019 the Daily Telegraph reported that the Cabinet had signed off on a draft Statutory Instrument enabling the Treasury to continue making payments to the EU in a ‘no deal’ scenario. The press reported that the Statutory Instrument would be made under the European Union (Withdrawal) Act 2018, potentially even under the negative—rather than affirmative—procedure.

44 However, the EU’s contingency budget regulation as discussed in paragraphs 25 and 26 at present only covers the 2019 budget. The other Member States could only request payments from the UK for 2020 once the EU’s expenditure plans—and therefore the necessary contributions—have been agreed by the Member States and the European Parliament. A further amendment to the Regulation could be made once the budget for 2020 is in place.

45 It had previously been reported the Commission had already sought to decrease the scale of any new spending commitments being made from January 2019 onwards to mitigate the impact of potentially losing the UK’s contributions. See Politico, “EU holds back budget cash to soften blow of no-deal Brexit“ (16 January 2019).

46 See HM Treasury, “European Union Finances 2018“ (June 2019), p. 15. This is inclusive of receipts from the EU budget by private sector entities like universities and charities. The Government’s estimate for the net contribution, which only includes receipts by the UK public sector, was £8.9 billion in 2018.

47 The remaining Member States have noted that “payments the United Kingdom will make under the Council Regulation [towards the 2019 EU budget following a ‘no deal’ exit] shall be fully taken into account for future negotiations when calculating the outstanding obligations resulting from the United Kingdom’s membership of the Union”.

48 The Treasury’s estimate of the total net size of the financial settlement (had the UK left the EU on 29 March 2019 as originally envisaged) was €42.4 billion. That is less than 1 per cent of all public spending in the EU-28.

49 Two significant exceptions to this, where the EU has unilaterally guaranteed continued EU funding for British recipients, are the Northern Ireland-Ireland PEACE Programme and the Erasmus+ student mobility programme.

50 The Department for the Environment, Food & Rural Affairs (DEFRA) has committed to continue committing “the same cash total in funds” for support to farmers until 2022 after the UK leaves the Common Agricultural Policy, but the Agriculture Bill has not received Royal Assent because the Government’s legislative programme has come to a halt.

51 On 2 July 2019, the Chancellor of the Exchequer (Rt Hon Philip Hammond MP) told Parliament that more details about the SPF “will be announced following the spending review, and the Government will consult widely on the funds”.



Published: 16 July 2019