9Possible UK participation in EU funding programmes post-Brexit65
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This EU document is politically important because:
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9.1Since May 2018, the EU’s remaining Member States and the European Parliament have been locked in extremely difficult negotiations to establish the Union’s long-term spending plans for the 2021–2027 period, known as the Multiannual Financial Framework or MFF.66 This will finance, among other things, the next generation of EU schemes that fund scientific research, agricultural production, food safety and climate change adaptation measures.67
9.2In return for a substantial financial contribution under the Withdrawal Agreement,68 following its formal exit from the EU on 31 January 2020, the UK will only remain a participant in European funding schemes until the end of the EU’s current budgetary cycle in December 2020.69 However, Brexit does not mean that UK involvement in certain EU programmes of mutual interest has definitively come to an end: the EU typically allows for “association”—formal participation—by “third countries” in many of its funding programmes, an option of which the UK will be able to avail itself in the future.70 Formal UK involvement would give British organisations and individuals the same eligibility to receive EU funding from a particular programme as counterparts based in the European Union itself, in return for a British financial contribution.
9.3As of March 2020, the precise conditions for involvement in EU programmes by non-EU countries over the 2021–27 are yet to be decided as part of the broader budget negotiations.71 However, a draft legal text prepared by the European Commission in March 2020 shows the EU intends to build on existing precedent, making UK “association” with specific programmes conditional on a yearly financial contribution and some limited powers for the EU institutions.72 Notably, the EU will insist on jurisdiction for the Court of Justice (CJEU) in relation to dispute settlement between the European Commission and British funding recipients, and on investigatory powers for the EU’s anti-fraud body OLAF.73
9.4With respect to the UK’s financial contribution, the European Commission has suggested in the draft agreement that:
- for every EU programme in which the UK participates, it would pay an annual “operational contribution”. The amount would be calculated using the established methodology already applied to Switzerland for participation in the EU’s research programme, where the amount to be paid is found by multiplying the annual budget for a particular EU programme74 by a “contribution key” (the partner country’s relative economic size compared to the EU’s);
- the Commission’s proposal is to calculate the UK contribution key by taking its GDP as a percentage of the EU-27’s GDP (approximately 15.6%). By way of example, this would mean that for participation in an EU programme with an annual budget of €100 million, the UK would have to pay €15.6 million;75
- the UK would also pay a separate “participation fee” for each EU programme in which it is involved, calculated as a fixed percentage of the operational contribution referred to above; and
- lastly, the Commission has also proposed a new ‘correction’ mechanism that would automatically require the UK to pay more into EU-funded programme in which it participates if it the money it receives outstrips its contribution by a—yet to be specified—proportion.76
The Government’s position on participation in EU programmes
9.5The Government has long indicated the UK might seek continued involvement in specific EU schemes post-exit.77 In October last year, the Political Declaration on the new UK-EU relationship specifically referenced possible British participation in “Union programmes” in areas as varied as “science and innovation, youth, culture and education, overseas development and external action, defence capabilities, civil protection and space”.
9.6However, by the time the Government laid its formal negotiating objectives for the new UK-EU relationship in Parliament on 27 February 2020, it had whittled the list of specific programmes in which British participation will be ‘considered’ under the EU’s 2021–27 Multiannual Financial Framework down to five potential cases:
- “Horizon Europe“, the EU’s main fund for scientific research;78
- the Euratom programme for research into the civilian application of nuclear energy;
- “Copernicus“, an earth observation service that is part of the EU space programme;79
- the “PEACE PLUS“ programme, an EU-funded scheme for cross-border cooperation between communities in Northern Ireland and Ireland;80 and
- the “Erasmus+“ programme, the EU’s student and teacher mobility scheme, for which UK participation would only be considered “on a time-limited basis, provided the terms are in the UK’s interests”.
9.7It is unclear what the Government’s specific concerns are with respect to Erasmus+, but it may be the interaction between its mobility component and the Government’s new immigration policy.81 More generally, with respect to UK participation in any EU programmes, the Government repeated the wording from the UK-EU Political Declaration that it would have to be on “fair terms”, including “fair treatment of participants, a fair and appropriate financial contribution, provisions allowing for sound financial management by both parties, and appropriate governance and consultation”. It is unclear whether the EU’s likely insistence of a role for the Court of Justice and OLAF would breach the fundamental principle, articulated by the Prime Minister on 3 February 2020, that any agreement with the EU could not provide for “any jurisdiction for the CJEU over the UK’s laws, or any supranational control in any area”.
9.8Moreover, from the wording of the command paper of 27 February, it appears that formal involvement in other EU schemes not explicitly mentioned has been ruled out for the time being (but perhaps not indefinitely). This means that the Government is not currently seeking UK participation in other programmes which would have seemed relevant under the terms of the Political Declaration, including notably the European Defence Fund for defence industrial development, the Creative Europe programme for the cultural industries, the Neighbourhood, Development & International Cooperation Instrument for development assistance, the Union Civil Protection Mechanism, and of course the Galileo satellite navigation programme.82
9.9It is also unclear if the reference to the Euratom research programme means the UK is still seeking participation in the EU’s ‘Fusion for Energy’ agency, its contribution to the international nuclear fusion research programme ITER.83 Similarly, there is no explicit reference in the UK’s negotiating objectives to potential use of co-funding from the EU’s “Connecting Europe Facility“, which funds cross-border infrastructure projects, despite the Government’s ambition for “technical cooperation between electricity and gas network operators and organisations in the planning and use of energy infrastructure connecting their systems”.
9.10The Government has not yet publicly commented on the draft legal text on UK participation in EU programmes circulated by the European Commission in March, in particular as regards the financial mechanism, or provided its own alternative proposals.
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9.11The Government has now confirmed that, as part of the negotiations with the EU, it will discuss UK participation in a limited range of EU spending programmes from January 2021 onwards as a ‘third country’, mostly related to scientific research. This Committee takes no position on the merit, or absence thereof, for seeking continued UK involvement in EU schemes. However, it notes that the reasons underpinning the Government’s decision to rule out seeking involvement in other EU programmes, which were tentatively identified as of interest in the Political Declaration only five months ago, are unclear. Similarly, the specific concerns voiced by the Government about UK participation in Erasmus+ are yet to be fully explained.
9.12As a precondition for any formal participation by the UK, or indeed by other non-Member States, the EU itself needs to agree on its long-term budget and the associated spending programmes. While those EU-level negotiations are on-going, preliminary discussions between the Government and the European Commission about UK participation in individual EU programmes began in March 2020. These will need to cover, among other things, a new financial contribution mechanism, and the limits of the specific powers of the EU institutions, notably the CJEU in relation to any European funding flowing to the UK.84 With respect to any financial contribution, using the methodology for the calculation of the UK’s contribution proposed by the European Commission in March 2020, we estimate the gross cost to the UK taxpayer could be in excess of £2 billion annually, with participation in the “Horizon Europe” the largest potential cost.85 This should be set, of course, against the material and non-material value to the UK and its scientific community for continued involvement in these European schemes.
9.13In light of the above, the Committee has written to the Chief Secretary to the Treasury—the Minister responsible for EU budgetary issues—to seek further information about the possible extent, and cost, of UK participation in EU programmes under the next Multiannual Financial Framework. The text of that letter is shown below. It will also continue to monitor developments in the EU’s legislative process to establish the individual funding programmes for the 2021–27 period which are, or may become, relevant for the UK, and make further reports to the House in due course as appropriate.
Letter from the Chair to the Chief Secretary to the Treasury (Rt Hon. Steve Barclay MP), 18 March 2020
Possible UK participation in EU funding programmes from 2021
Since May 2018 the European Scrutiny Committee has kept a watching brief on the EU’s negotiations for its next Multiannual Financial Framework (MFF) 2021–27, in anticipation of possible UK participation in specific EU programmes during that period as a ‘third country’. In particular, we maintain the view that the EU’s proposed budgetary allocation for programmes of interest to the UK under the new MFF will in turn directly impact on how much we may be asked to contribute to participate.
In the Government’s command paper of 27 February on the UK’s future relationship with the EU, it confirmed the UK will ‘consider’ seeking participation in four EU programmes: “Horizon Europe” research programme; the Euratom nuclear research programme (but without referring explicitly to continued involvement in the nuclear fusion research project ITER); the Copernicus earth observation project; and the “PEACE PLUS” cross-border cooperation scheme on the island of Ireland.
It also noted that continued involvement in the Erasmus+ student mobility programme could be an option “on a time-limited basis, provided the terms are in the UK’s interests”. There is no reference to the possibility of funding from the Connecting Europe Facility for cross-border energy projects between the UK and the EU, despite the ambition for “technical cooperation[…] in the planning and use of energy infrastructure” and the “integration of renewable power and investment in decarbonisation projects in the north seas”.
The exact conditions under which the UK could seek participation in these programmes are yet to be finalised by the European Parliament and the remaining Member States as part of the MFF negotiations. However, based on the draft legal text on UK ‘association’ circulated by the European Commission in March 2020, we consider that the potential UK financial contribution in return for involvement, especially in the case of “Horizon Europe”, could be significant. In particular, we have taken note of the Commission’s proposed methodology for the UK’s contribution key, which would be defined as the ratio between the UK’s GDP and that of the EU (as is the case for Switzerland’s participation in the EU’s current research programme), and the new “rebalancing mechanism” to prevent the UK from becoming a substantial net beneficiary of EU programmes as a non-EU country.
In addition, the Government will need to clarify precisely the coherence between saying that under the new UK-EU partnership there cannot be “any jurisdiction by the CJEU over the UK’s laws, or any supranational control in any area”, while the EU’s agreements on participation in its programmes with countries like Switzerland show that acceptance of some limited jurisdiction of the Court vis-a-vis recipients of EU funding, is generally a precondition for ‘association’ in EU funding schemes. Similarly, non-EU countries have to date also been asked to acknowledge the powers of the EU’s anti-fraud body OLAF to investigate potential irregularities in EU spending.
These technical and legal hurdles aside, the process of seeking “association” could also easily become politicised by developments in the wider negotiations between the UK and the EU on a new economic and security relationship. The example of Switzerland, which was suspended from significant parts of the EU’s research funding programme over its refusal to extend free movement to Croatian nationals after the country joined the EU in 2013, is instructive in this regard. UK and EU scientific cooperation could easily become a casualty of the wider negotiations even if participation in the relevant EU programmes is in both sides’ interest.
In light of the above, we ask you to write to us by 3 April, in consultation with other relevant Government Departments, to:
- provide us with your initial assessment of the European Commission’s draft legal text on UK participation in EU programmes of 12 March 2020, especially the proposals related to the methodology for the UK’s financial contribution and the rebalancing mechanism;
- clarify whether the Government’s consideration of UK participation in EU programmes means it would be willing to accept some limited role for the CJEU, OLAF and the Court of Auditors, as for example Switzerland has done in return for participation in EU research programme for the 2014–2020 period, despite the Prime Minister’s statement of 3 February 2020, in which he excluded “any jurisdiction for the CJEU over the UK’s laws [and] any supranational control” under UK-EU agreements;
- explain which specific concerns Erasmus+ led the Government to say that any UK participation in this mobility scheme for students would only be “on a time-limited basis, provided the terms are in the UK’s interests”;
- clarify if the Government, as part of any continued involvement in the Euratom research programme, would also seek formal participation in the EU’s ‘Fusion for Energy’ agency and its contribution to the ITER fusion research project;
- confirm whether the Government has ruled out seeking co-funding from the Connecting Europe Facility for any cross-border infrastructure projects with neighbouring countries, especially in the field of energy; and
- set out on what basis UK participation in other EU programmes not explicitly listed in the command paper of 27 February appear but tentatively identified in the Political Declaration now have been ruled out, especially with respect to Creative Europe, the European Defence Fund, the Neighbourhood, Development and International Cooperation Instrument and the Civil Protection Mechanism.
We look forward to receiving further updates from you in due course, if appropriate, in relation to any progress in negotiations with the EU on the conditions of any UK ‘association’ with specific EU programmes, including in particular on the specific methodology underlying any UK financial contribution.
65 Proposal for a Council Regulation laying down the multiannual financial framework for the years 2021 to 27; 8354/18 + ADD 1, COM(18) 322; Legal base: Article 312 TFEU; special legislative procedure; unanimity; Department: HM Treasury; Devolved Administrations: consulted; ESC number: 39683.
66 Among the key issues under negotiation are the overall size of the EU budget for the 2021–27 period, where cuts may be made if there is a real-term reduction following the UK’s exit, and the question of rebates for the largest net contributors.
67 The previous European Scrutiny Committee reported the proposed MFF to the House in its Report of 4 July 2018.
68 The UK remains a participant in EU funding schemes until the end of 2020 because it has agreed to honour, in full, its share of the EU’s 2014–20 Multiannual Financial Framework and a share of other EU liabilities accrued during the period of the UK’s EU membership. On 11 March 2020, the Office for Budget Responsibility estimated that the total net cost of that settlement will amount to approximately £32,9 billion from 1 February 2020 until its resolution.
69 The UK is currently in a post-Brexit transitional arrangement during which EU law continues to apply. This transition is due to end on 31 December 2020. The Withdrawal Agreement foresees the option of an extension for one or two years, in which case the UK would have to make a further contribution to the EU budget additional to the settlement described in the footnote above, but it would not be automatically eligible for EU funding from 1 January 2021 unless the Government had negotiated specific participation agreements for particular EU funding programmes by that date. Section 15A of the European Union (Withdrawal) Act 2018 prohibits the Government from extending the transitional period beyond the end of 2020.
70 Participation by ‘third countries’ is granted on the EU’s terms, and can become politicised. The EU can seek terms allowing it to suspend a country’s participation in its programmes for unrelated political reasons, as Switzerland discovered in 2013. After the Swiss government refused to extend free movement rights to Croatian nationals, Switzerland’s scientific community was denied full involvement in the ‘Horizon 2020’ research fund until the free movement issue was resolved in 2017.
71 The European Commission tabled a draft for the long-term budget in May 2018. Our predecessors reported it to the House on 4 July 2018. The European Council summit of 20 February 2020, convened especially to discuss the MFF, ended in failure.
72 European Commission, “Draft text of the Agreement on the New Partnership between the European Union and the United Kingdom” (12 March 2020), Part Four.
73 See for example the EU-Switzerland agreement on participation in the ‘Horizon 2020’ research programme, or the dispute resolution clauses of the European Commission’s model grant agreement for funding awarded from that programme.
74 The budget for individual EU funding programmes would of course be set under the Union’s normal budgetary procedure, in which the UK no longer participates.
75 An alternative approach is used for Norway and Iceland as members of the European Economic Area. Their contribution key is calculated as the ratio between their GDP and GDP of the EU plus that country combined. This lowers the ratio and therefore the contribution, in the case of the UK yielding a contribution key of approximately 13.5%. The financial implications of this difference in methodology are potentially significant. For example, for “Horizon Europe”—the EU’s new research programme in which the UK is interested—the Commission has proposed an annual average budget for the 2021–27 period of €12.4 billion. Depending on how the UK’s contribution key is calculated, that could require a gross annual payment of either €1.93 billion (£1.75 billion) or €1.67 billion (£1.52 billion).
76 The UK as a Member State was a significant net contributor to the EU budget. From European Commission figures, it appears its share of receipts from specific EU programmes in a given year during the 2014–2020 budgetary cycle only outstripped its proportional contribution to the EU budget that year (which averages approximately 12.5 per cent of all Member States’ contributions) in a limited number of cases, primarily for the Euratom research programme for nuclear power because of the presence of the EU-funded Joint European Torus fusion energy project in Culham, Oxfordshire.
77 See for example the July 2018 “Chequers” White Paper on the future UK-EU relationship, which called for UK associate status with various EU programmes, including not only the Framework Programme for Research, but also its Euratom nuclear research programme, the nuclear fusion project ITER and the Erasmus+ student exchange programme.
78 In January 2020, the Wellcome Trust published a report on, and template agreement for, UK association with ‘Horizon Europe’.
79 The Government also said it “will consider service access agreements” for—i.e. payment for specific services rendered by—the EU Space Surveillance and Tracking project, a ground-based orbital tracking system designed to track space debris and help protect space assets by preventing collisions, and the European Geostationary Navigation Overlay Service (EGNOS), which improves the accuracy of satellite navigation systems. The UK’s negotiating objectives do not refer to possible continued participation in Galileo, the EU’s satellite navigation programme.
80 The Government’s position paper states: “The UK also notes its specific ongoing commitment to delivering the PEACE PLUS programme. The UK will deliver the PEACE PLUS programme as part of the UK’s unwavering commitment to uphold the hard-won peace in Northern Ireland. The UK will work with the European Commission and the Irish Government to shape the programme, maintaining the current funding proportions for the future programme.”
81 The Minister for Universities (Michelle Donelan MP) was pressed in the House of Commons on the Government’s apparent hesitation to continue participation in Erasmus+ on 2 March 2020, but did not provide any substantive response.
82 In August 2018, the Government announced work to “design a national alternative to the EU’s Galileo satellite system”. However, in March 2020 it was reported that the future and scope of the project were uncertain.
83 In March 2019, the Government said that “on EU research funding programmes, the UK wishes to explore association in research and innovation programmes, including Horizon Europe, the Euratom Research and Training Programme, the Joint European Torus (JET) project and ITER”.
84 The Government would also have to accept a much smaller role—and no formal vote—in relation to the detailed annual work programmes that determine how EU programmes, including any UK contribution, are managed.
85 This figure is necessarily highly speculative. However, the ultimate UK contribution would depend on whether formal participation is sought and secured, and the substance of the methodology to calculate the contribution, as discussed in an earlier section. For this figure we have used the methodology used in the EU-Switzerland agreement on Swiss participation in EU research schemes and applied it to the draft budgets proposed by the Commission for Horizon Europe, the Euratom research programme, Copernicus and Erasmus+. The Government is of course free to reject participation in any EU programme if it considers the financial cost too high relative to the benefits.
Published: 1 April 2020