Cameron's EU budget deal is bad for Britain and for the eurozone recovery

Spending on the bloated Common Agricultural Policy has been increased, while spending on infrastructure and other growth projects has been cut.

David Cameron was right to call for an EU budget cut. Agricultural payments and regional funds have been bloated and badly spent for years. But the deal he looks to have secured is bad for Britain and bad for the eurozone recovery.

Last year, IPPR called for a 25 per cent cut in the EU budget with reductions to the Common Agricultural Policy (CAP) and the repatriation of regional funds for rich countries. We suggested that Cameron put the UK rebate on the table in order to deliver this 'grand bargain'. Our calculations showed that the UK would be better off as a result, with a lower net contribution than at present. But in order to secure a headline cut in the overall size of the budget, to assuage eurosceptic demands, the Prime Minister appears to have taken a backward step on the road to European recovery.

The British rebate has been preserved in its entirety but reports suggest that the UK (along with all rich countries aside from Italy) will end up making a bigger net contribution. This is partly legitimate because cohesion funds for poorer EU countries will increase. But it is also because €27bn of cuts have come, not from the inefficient and distortive CAP budget, which has increased by €9bn, but from the funds for competitiveness and growth.

This budget includes funding for research and development, transport and energy infrastructure, which create jobs in the short-term as construction takes place and growth in the long-term as they improve the productive capacity of the economy. For example, the Connecting Europe Facility, which is intended to increase the efficiency of energy transmission and therefore bring down bills, has been cut from €9.1bn to €5.1bn. 

By seeking a favourable headline from the already sceptical British press, the PM is selling Britain a lemon.

David Cameron and his entourage arrive back at the EU headquarters in Brussels, Belgium. Photograph: Getty Images.

Will Straw was Director of Britain Stronger In Europe, the cross-party campaign to keep Britain in the European Union. 

Photo: Getty
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What price would the UK pay to stop Brexit?

The EU could end Britain's budget rebate and demand that we join the euro and the Schengen zone.

Among any group of Remain politicians, discussion soon turns to the likelihood of stopping Brexit. After Theresa May's electoral humbling, and the troubled start to the negotiations, those who oppose EU withdrawal are increasingly optimistic.

“I’m beginning to think that Brexit may never happen,” Vince Cable, the new Liberal Democrat leader, said recently. A growing number, including those who refuse to comment publicly, are of the same view. 

But conversation rarely progresses to the potential consequences of halting Brexit. The assumption that the UK could simply retain the status quo is an unsafe one. Much hinges on whether Article 50 is unilaterally revocable (a matter Britain might have been wise to resolve before triggering withdrawal.) Should the UK require the approval of the EU27 to halt Brexit (as some lawyers believe), or be forced to reapply for membership, Brussels would extract a price. 

Guy Verhofstadt, the European parliament’s Brexit co-ordinator, recently echoed French president Emmanuel Macron's declaration that “there is always a chance to reopen the door”. But he added: “Like Alice in Wonderland, not all the doors are the same. It will be a brand new door, with a new Europe, a Europe without rebates, without complexity, with real powers and with unity.”

The UK's £5bn budget rebate, achieved by Margaret Thatcher in 1984, has long been in the EU's sights. A demand to halt Brexit would provide the perfect pretext for its removal. 

As Verhofstadt's reference to “unity” implied, the UK's current opt-outs would also be threatened. At present, Britain (like Denmark) enjoys the right to retain its own currency and (like Ireland) an exemption from the passport-free Schengen travel zone. Were the UK to reapply for membership under Article 49 of the Lisbon Treaty, it would be automatically required to join the euro and to open its borders.

During last year's Labour leadership election, Owen Smith was candid enough to admit as much. “Potentially,” he replied when asked whether he would accept membership of the euro and the Schengen zone as the price of continued EU membership (a stance that would not have served Labour well in the general election.)

But despite the daily discussion of thwarting Brexit, politicians are rarely confronted by such trade-offs. Remaining within or rejoining the EU, like leaving, is not a cost-free option (though it may be the best available.) Until anti-Brexiteers acknowledge as much, they are vulnerable to the very charge they level at their opponents: that they inhabit a fantasy world. 

George Eaton is political editor of the New Statesman.