Downing Street could have stopped the £1.7bn EU surcharge

Jonathan Lindsell, 24 October 2014

Britain has been asked to pay an extra £1.7bn (€2.1bn) into the European Union’s budget because the economy has outperformed projections in the last four years. Greece and the Netherlands are also being asked to pay more, while large economies like Germany and France will see billions in rebates. This seems grossly unfair, as all this morning’s headlines reflect. The Treasury cannot claim this was a surprise.

A government source told the BBC: “It’s not acceptable to just change the fees for previous years and demand them back at a moment’s notice. The European Commission was not expecting this money and does not need this money and we will work with other countries similarly affected to do all we can to challenge this.”

Number Ten complained that it was only informed of this surcharge last week, but it’s always known the rules for EU budget contributions. The new fee comes as a result of the European Commission’s Eurostat body examining member states’ economies since 1995, adjusting for the ‘black’ and ‘grey’ economies – semi-documented activity including the proceeds of theft, non-profit organisations, sex work and drug sales.

This technical change – to take account of the whole economy and adjust debt-GDP and budget contributions accordingly, has been agreed by all member states. It has been in the pipeline for months. The government could, and quite possibly did, calculate that this would mean Britain would be asked to pay more, but made no protest about the change in accounting practice. Indeed, because including shadow economic estimates would boost the appearance of Britain’s overall GDP by $16.4 bn, it looks like the government was quietly pleased to comply in May. The consequences would inevitably be that Britain would be taxed more, since the Treasury claimed it was worth more.

This is all a problem of David Cameron’s making: rather than try to resist the charge along with Holland’s Mark Rutte, he should have anticipated the increased charge and either ensured it could be paid incrementally over the next seven year budget payment, or resisted it altogether. Moreover, the new accounting directive of ‘best practice’ was actually agreed at the UN in 2008 – so could have been challenged for six years. We’ve chosen our cake, now we have to eat it.

Certainly, the EU has been overzealous in demanding the payment so quickly, and so bluntly. It comes at a terrible time for Cameron since his Conservative party are fighting a tight by-election with Ukip defector Mark Reckless in Rochester and Strood. Such a large sum, demanded so abruptly, shows scant EU regard for the delicate debate in Britain and will surely add support to the more Eurosceptic party. This episode needlessly makes the prime minister’s promises of reforming the European Union look paper-thin.