Brexit

What might the EU’s long-term budget mean for Wales post-Brexit?

On 2 May 2018, the European Commission put forth its proposals (PDF 3,671KB) for the EU’s next long term budget – the Multiannual Financial Framework - which will run from 2021 to 2027. This will be the first Multiannual Financial Framework (MFF) for the EU 27 following the withdrawal of the UK, and will provide a key indication of the direction that EU policy will take over the next seven years.

12 June 2018

Darllenwch yr erthygl yma yn Gymraeg | View this post in Welsh

Background

On 2 May 2018, the European Commission put forth its proposals (PDF 3,671KB) for the EU’s next long term budget – the Multiannual Financial Framework – which will run from 2021 to 2027. This will be the first Multiannual Financial Framework (MFF) for the EU 27 following the withdrawal of the UK, and will provide a key indication of the direction that EU policy will take over the next seven years.

A pile of 50, 20 and 10 Euro notes laid out on a table

Although the UK is scheduled to have left the EU by the time the new MFF comes into force, the EU’s budget plan may still be of significance to Wales. This is because it will create the basis for EU programmes that the UK has indicated it might wish to participate in post-Brexit, such as Horizon and Erasmus+. It will also provide an indication to UK organisations and citizens as to what they might have been entitled to receive under EU policies and programmes had the UK remained part of the EU. This is significant as commitments were made during the EU referendum campaign to keep some funding levels the same in the period after Brexit. The MFF will therefore indicate the level of funding the UK Government would need to provide if it is to match that which would have been available under EU membership.

Impact of Brexit

The European Commission has proposed (PDF 3,671KB) that the total budget for the next MFF should be €1,279 billion. This is equivalent to 1.114% of the EU-27 gross national income (GNI). The Commission states in its proposals that this is comparable to the size of the current 2014-2020 Financial Framework in real terms (including the European Development Fund, which is currently separate from the EU budget, but will be incorporated from 2021 (PDF 3,671KB).

However, while the proposed budget commitments may be similar to those of the current MFF, the soon-to-be EU-27 will have to account for the loss of the UK’s net contribution. The EU will face a structural financial gap of around €12 to €13 billion following the withdrawal of the UK, according to Günther Oettinger, the EU’s Budget Commissioner. In compiling the proposals for the 2021-2027 MFF, the Commission acknowledged that:

The withdrawal of the United Kingdom from the Union will mean the loss of a significant contributor to the financing of the Union’s policies and programmes. This will require us to take a critical look at where savings can be made and priorities delivered more efficiently.

The Commission intends to address this funding gap (PDF 3,671KB) through ‘a combination of additional contributions and savings’:

The departure of an important contributor to the EU budget will have a financial impact and the future Financial Framework must take account of that. Maintaining a level of support that matches our ambitions across the priority areas will require additional contributions from all Member States in a fair and balanced way. In parallel, no effort must be spared to make the EU budget more efficient. The Commission is proposing savings in some of the main spending areas and reforms across the budget to make it more streamlined and to get the most from every euro.

The Commission is also proposing (PDF 3,671KB) a number of new funding sources, including:

  • 20% of the revenues from the Emissions Trading System;
  • A 3% call rate applied to the new Common Consolidated Corporate Tax Base (to be phased in once the necessary legislation has been adopted);
  • A national contribution calculated on the amount of non-recycled plastic packaging waste in each Member State (0.80 € per kilo)

Significance for Wales

The UK is scheduled to have left the EU by the time the next MFF comes into force. However, the EU’s future long-term budget may still be of relevance to Wales and the UK, for the two reasons outlined in the introduction to this blog.

Funding for EU programmes

Both the UK and Welsh (PDF 1,782KB) governments have expressed a desire to continue participating in certain EU programmes after Brexit, including Erasmus+ and Horizon Europe. The Welsh Government has also indicated that it hopes the UK will remain in the Creative Europe Programme. Part of agreeing the 2021-2027 MFF involves setting the budget and making proposals for the design and functioning of new and existing EU programmes. The Commission’s proposals for the next-long term budget not only provide an indication of how EU programmes will be funded over the next seven years, but may also give some insight as to whether the UK will be able to participate in these programmes after Brexit, as well as the cost of participation.

For example, on May 30 the Commission unveiled its 2021-2027 Erasmus proposal (PDF 792KB). This proposal includes alterations to article 24 of the current system (2014-2020) which excludes countries from participating in Erasmus if they are neither EU member states, candidates for accession, members of the European Free Trade Association or covered by the European Neighboured Policy. The Commission’s proposals for the next seven years include a new category for third (non-EU) party participation, which would enable the UK to participate in the Erasmus programme. The Commission is proposing that the programme be open to the participation of third countries on the condition that an agreement is reached which ‘ensures a fair balance as regards to the contribution and benefits of third county participation’. This essentially means that the UK would be able to pay to participate.

The Commission is proposing (PDF 792KB) ‘a more powerful Erasmus programme’ which will reach €30 billion over the seven year period. This represents a doubling of funds for the programme.

As part of the next MFF, the Commission is also working on its proposal (PDF 3,671KB) for Horizon Europe, the framework programme that will succeed Horizon 2020. With a proposed budget allocation of €97.9 billion, is would be the EU’s largest ever research and innovation funding programme.

UK funding post-Brexit

As mentioned at the top of this blog, the EU budget proposals also provide an indication to UK organisations and citizens of what they may have received had the UK remained a Member State. For instance, the new MFF will determine the total amount of funding allocated to the Common Agricultural Policy (CAP), European Maritime and Fisheries Fund, European Regional Development Fund. This will then provide a benchmark for businesses and industry stakeholders in Wales and the rest of the UK to assess whether the funding they receive from the UK Government post-Brexit is comparable to that which they would have been able to access under membership of the EU.

In regards to financial support to farmers, for example, UK Secretary of State for Environment, Food and Rural Affairs, Michael Gove MP, stated in a speech at the Oxford Farming Conference on 5 January 2018 that the UK Government has guaranteed that the amount allocated to farming support – in cash terms – will be protected ‘right up until the end of this Parliament in 2022’. In a letter to the House of Lords EU Energy and Environment Sub-Committee on 11 September 2017, The Minister of State for Agriculture, Fisheries and Food, George Eustice MP, stated that the UK Government’s commitment to maintain ‘the same cash total in funds for farm support’ until 2022 is based on the funding currently available under the 2014-2020 MFF.

It remains to be seen what this commitment means in light of the European Commission’s proposal for direct payments to farmers under CAP to be ‘moderately reduced’ under the new MFF, as of 2021. In unveiling its proposals for the next MFF, the European Commission stated that:

By moderately reducing funding in Common Agricultural Policy and Cohesion Policy programmes, the proposal also responds in a fair and balanced way to the budgetary consequences of the withdrawal of the United Kingdom, an important contributor to the EU budget.

On 1 June 2018 – as part of the MFF proposals – the European Commission published its CAP strategic plans for 2021-2027. According to these proposals, the reformed CAP will have €365 billion funds to manage over the seven year period, which represents a 5% cut over the previous period. The Commission has proposed reducing and then capping the direct payments to farmers at €60,000 per farm (taking into account labour). However, European Commissioner for Agriculture and Rural Development, Phil Hogan, has stated that ‘direct payments will not fall by more than 4 per cent in any Member State’.

What next?

Having unveiled its proposals for the 2021-2027 MFF, the European Commission must make a series of sector-specific legislative proposals on the following areas: regional development and cohesion; investing in people, social cohesion, values; economic and monetary Union; agriculture, environment and climate. This takes place between 29 May and 14 June. The MMF regulation, followed by the sector-specific legislation, must then be adopted by the European Council of Ministers by unanimity, after obtaining the consent of the European Parliament. It is the ambition of the European Commission to have the new MFF agreed by the time of the European Parliament election in 2019.


Article by Alastair Grey, National Assembly for Wales Research Service
The Research Service acknowledges the parliamentary fellowship provided to Alastair Grey by the Economic and Social Research Council (ESRC), which enabled this blog to be completed.

Source: Image from Flickr by Images Money. Licensed under Creative Commons.