Brexit GDP losses to dwarf Britain’s EU budget contributions

Brexit Banksy [Duncan Hull/Flickr]

As net contributors to the EU budget, the UK’s Brexiteers had hoped they would be better off after leaving the bloc. But the evidence suggests Britain stands to lose more through reduced market access than it could hope to claw back from Brussels.

Britain’s total contribution to the EU budget for the year 2015-2016 was £17.6 billion (€20.3bn).

In return, it received £2.8bn (€3.2bn) in funding for public sector programmes, on top of a rebate of just over £4bn (€4.6bn), making a net contribution of £10.75bn (€12.31bn), according to official data compiled for by ReportLinker.

Public sector receipts do not include payments to farmers under the Common Agricultural Policy (CAP) or other direct payments to UK organisations, together worth at least another £4bn to the UK economy.

UK contributions to and receipts from the EU budget

A large proportion of EU funding in the UK goes towards regional development projects and research programmes that would otherwise have difficulty accessing funding from private investors.

With more than €2bn allocated between them under the 2014-2020 Multiannual Financial Framework, England’s North West and West Midlands regions are the UK’s biggest recipients of EU regional development funds.

Meanwhile, British universities and research centres were awarded £2.2bn (€2.5bn) in the latest round of applications under ‘Horizon 2020‘, the EU’s multi-billion research and innovation programme.

UK contributions to and receipts from the EU budget 2015-2016 (1)

Services to take a hit

Britain had hoped that leaving the EU would allow the country to save on its budget contributions. But any savings are likely to be dwarfed by the economic losses incurred as a result of leaving the single market.

Services account for close to 80% of Britain’s GDP. The City of London, the EU’s biggest financial centre, is the home of the UK’s financial services industry, which is worth some £124bn (€143bn) to the British economy.

But according to a recent study carried out by Cebr for the anti-Brexit campaign group Open Britain, the services industry alone stands to lose up to £36bn (€41bn) per year from reduced access to EU markets, outweighing the country’s net budget contribution by three to one.

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The study found that an “upside” Brexit scenario, with Britain retaining some access to the single market for services, would result in annual losses of £25bn (€28.7bn) to the UK economy, or 1.4% of GDP. The “downside” scenario would see £36bn annual losses, worth 2% of GDP.

The EU’s single market “ensures more total trade access than a typical FTA”, Cebr said, by allowing members to buy and sell heavily regulated services (such as financial services and air travel) in all other member states.

Access for companies based outside the single market is restricted. Once outside, it is unlikely that UK-based firms will retain the right to operate freely across the EU.

Given the extent to which services are entangled with free movement and a host of other factors, it is impossible to model the direct fiscal impact of a £25-36bn GDP loss in the sector. But it would likely be a significant hit to the treasury.

Britain’s banking sector alone made a direct fiscal contribution of £24.4bn in 2015-16, according to figures from UK parliament.

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The impact on other member states

Across the channel, the Commission and the other EU member states are concerned about the impact this €10.75bn hole in the EU budget will have on their future finances.

Austrian Minister for Foreign Affairs Sebastian Kurz said Vienna would not increase its payments to the EU budget after Britain quits the bloc.

“Net contributions will not go up,” he insisted. “There will have to be savings.”

This is the substance of perhaps the most delicate chapter of the Brexit negotiations: the divorce bill. As negotiators gear up for bad-tempered talks over money, Brussels is keen to ensure the UK pays its full share or commitments it has already made, so others are not forced to foot the bill.

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