Cameron set to win a cut in the EU budget - but there's a catch

Even if European leaders agree to a €34.4bn cut in the EU budget, the UK will almost certainly pay more.

David Cameron went into the EU budget negotiations insisting on "at worst a freeze, at best a cut" (Labour and rebel Tories had demanded that he go further and insist on a cut) and after a long night of talks, it looks as if he's secured the "best". For the first time in its history, the EU is set to agree to a cut in its next seven-year budget. Earlier this morning, EU president Herman Van Rompuy tabled proposals that would see the union's spending limit for 2014-20 reduced from €942.8bn to €908.4bn - a  €34.4bn cut and a saving of £400m-a-year for British taxpayers. 

If approved - EU leaders have just taken a two-hour break from the onerous negotiations - a cut would be a triumph for Cameron. He will have defied those who claimed that his promise of an in/out referendum on Britain's EU membership would leave him unable to achieve a successful outcome.

The catch, however, is that regardless of whether the EU agrees to a real-terms cut in its budget, the UK's net contribution will almost certainly increase. This is largely due to a reduction in the British rebate agreed by Tony Blair in 2005 to meet the cost of EU enlargement (a cause the UK had championed) but a cut in the EU budget will look less impressive to voters if it turns out that we'll still be paying more. Tory MP Mark Pritchard, one of those supported a real-terms cut when the Commons voted last October, tweeted this morning: "It will be a historic, but 'bitter-sweet' outcome, if the PM negotiates a real terms cut in the EU budget but sees the UK contribution rise".

In addition, the overall budget will still need to be approved by the EU parliament and German Social Democrat Martin Schulz, the president of the parliament, has been making sceptical noises this morning. He is threatening to veto the proposed deal on the grounds that it would create a structural deficit. "The [budget] in the form currently being proposed, however, would turn what is already a legally highly questionable trend into a structural deficit," he told EU leaders. 

Worst of all, while spending on the bloated Common Agricultural Policy (a slush fund for assorted land-owning dukes, earls and princes) will be €1bn higher than under the previous proposal, spending on transport, telecommunications and energy projects, all vital pro-growth areas, will be €11bn lower. 

Yet given how few expected him to be in a position to announce any kind of cut, Cameron will rightly feel that the summit has been a success for him. Having once refused to contemplate a reduction in spending, EU leaders now make Cameron-esque noises about the need for restraint at a time when EU member states are enduring austerity. The draft conclusion states: "As fiscal discipline is reinforced in Europe, it is essential that the future Multiannual Financial Framework [the seven-year budget] reflects the consolidation efforts being made by member states to bring deficit and debt onto a more sustainable path. The value of each euro spent must be carefully examined." Arch-eurosceptic Douglas Carswell has offered the PM "three hearty cheers" this morning and so will many others in his party. 

David Cameron arrives at the EU Headquarters on February 7, 2013 in Brussels. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.