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31 August 2016updated 29 Jul 2021 11:43am

Brexit negotiations: what happens to EU payments and subsidies?

There is no real plan in place beyond 2020.

By Anoosh Chakelian

Throughout the EU referendum campaign, the constant chatter was about how much our membership costs the UK (it’s not £350m a week, but enough red buses and red tops said it was to make it seep into our consciousness).

What didn’t receive so much air time was how much money we get from the European Union. Because it really does pay for a lot of our stuff. Britain commits £18bn to the EU budget every year. Of this amount, London receives a rebate of £5bn, and £6bn goes to the rest of the UK for EU-funded projects (funding that can be matched by private investment) and farm subsidies.

There are EU spending projects (often called “structural funds”) for vital areas, including farming, science, and culture. Key examples are the EU farming subsidies, which account for 50 per cent of British farm incomes (roughly £2.5-3bn a year, depending on the exchange rate), and development projects in poorer areas – such as Cornwall, west Wales, and parts of the northeast – which receive an outsized amount of EU funding.

Cornwall, which has benefited from Brussels backing a £132m super-fast broadband scheme, rail improvements and the Penryn university campus among other projects, was set to have received £2.5bn (in EU spending matched by private investment) by 2020. Wales has benefited from just over £4bn of EU money since 2000 for projects like town centre development, road improvements, and higher education programmes and buildings.

Before the referendum, the Vote Leave campaign tried to reassure recipients of EU money that their funding would be safe. In the words of Tory minister Priti Patel, there would be “more than enough money” to go round for such areas, post-Brexit, and they would remain priorities for public spending.

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An open letter signed by eurosceptic ministers ahead of the vote claimed:

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“There is more than enough money to ensure that those who now get funding from the EU – including universities, scientists, family farmers, regional funds, cultural organisations and others – will continue to do so while also ensuring that we save money that can be spent on our priorities.”

But now the deed is done, what happens to our EU grants and subsidies? And is there a contingency plan in place to replace them?

The simple answer is: not in the long term.

The government has committed to footing the bill for what we would have received in EU grants and subsidies – for projects signed off before this year’s Autumn Statement – into the year 2020. Which is not particularly generous, given we are only set to have completed Brexit negotiations by early 2019.

It is the first spending commitment of the new Chancellor, Philip Hammond, for the Treasury to pick up the tab for what the UK would have received from the EU up until 2020. This money (which could be up to £6bn a year) is thought to be available as a result of contributions Britain no longer needs to pay to Brussels. And organisations can still bid for EU funding as negotiations are taking place.

But there are no plans in place for filling in the gap beyond 2020. And in an example of Theresa May’s “you break it, you fix it” approach to appointing her cabinet, the Environment Secretary and one-time Brexiteer candidate for Tory leader, Andrea Leadsom, will have to come up with a plan for funding farming – and deal with the consequences if it fails.

Hammond has, however, pledged that long-term infrastructure projects and research programmes, which have already been awarded funding by the EU before Britain leaves, will continue to go ahead with Treasury money, even if they carry on beyond 2020. 

Although representatives of the farming, science and general academic communities have welcomed Hammond’s reassurances, where will the money come from beyond short-term Treasury assistance? It is difficult to see how these areas – kept afloat by EU spending – will continue to be prioritised without deeper, more painful public spending cuts elsewhere.