Reporting our budget to the EU

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John Redwood’s latest blog discusses how the UK has to submit its budget to the EU.

Yesterday there was a debate on the UK’s report of its public finances to the EU. Under the EU Treaties the UK has to submit its budgets to the EU, and they examine and comment on our economic management. Under the Treaty the UK is meant to keep its deficit to less than 3% of GDP. The figures sent in this year show the UK hitting that target for the first time since the crisis in 2016-17.

Being out of the Euro the EU cannot fine the UK for failing to comply, but the EU does apply moral pressure and will comment on the UK’s financial situation if it wishes. As the government has been seeking to reduce the deficit anyway there has not been tension, but if a government had been elected that wanted to keep the deficit well above Treaty levels there could have been more public tensions.

The UK government felt it had to send a 300 page document to the EU to meet the requirements of the Treaty. This takes the form of sending the relevant parts of the Budget reports, along with a special preface to the figures. The document reproduces some of the interesting materials of the UK publication, including the latest OBR forecasts of population change. Their central forecast assumes net migration of 329,000 in 2025 and 256,000 in 2016, declining to 185,000 in 2021. This is well above the government’s own target for reduced numbers, and of course is based on the assumption of continuing EU membership. They also run a higher migration forecast where it stays above 250,000 for the next five years.

I raised with the Minister several issues. First, I asked why the UK has to go through this process. As the UK has failed to hit the deficit target for an extended period of years, wouldn’t it be better to exempt the UK from this whole process? Clearly our controlling our deficit is not important to the others in the way it is crucial if you belong to the same currency as the neighbours. Shouldn’t the UK’s so called “special status” recognise this?

Second, I raised the issue of population forecasts. What action is the government taking to prove these forecasts wrong, given the stated policy objective to get net migration down to the tens of thousands.

Third, I asked about the increase in expenditure transfers to the EU institutions, where the forecast for 2016-17 has been increased from £10.7bn in November to £11.8bn this March. This increase of £1.1bn is unhelpful, and just happens to be similar to the amount of the annual savings being sought in disability payments in the original budget.

Click here to read this piece in John Redwood’s Diary.

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