Widespread austerity. Slashed budgets. Tough spending decisions. Not for the EU, it seems. This week, the European Court of Auditors (ECA) found that the European Union wasted almost £6 billion last year – 5 per cent of its total budget – on erroneous projects. This included providing funding for fraudulent and illegal schemes. Of the multi-billion pound waste, over £800 million was provided by British taxpayers.
What is just as significant as the vast sums involved is that it’s not entirely surprising. It is not as if the ECA report has shed new light on bad practices in Brussels over the years. After all, these are the same bureaucrats that spent €2.4 billion on self-promotion in 2008 alone. (For comparison, Coca-Cola spent €2.13 billion on advertising in the same period.) The same group that has overseen the spending of £265,000 on cocktail parties in a single year. And of £160,000 on a fitness centre for dogs – which, as it goes, has not yet even opened. Lest it be forgotten, this is the 19th year in a row in which auditors have proclaimed EU accounts to be riddled by error. 19 years of squandering resources. When is enough enough?
News of such mismanagement will only add strength to the arguments of those calling for a re-think of Britain’s relationship with the Union. As Vitor Caldeira, the President of the EU auditors, has said: ‘Europe’s citizens have a right to know what their money is being spent on and whether it is being used properly.’ For its own sake then, the EU must act swiftly. Given that the figures provided by the ECA represent a 23 per cent increase on spending errors compared to 2011, such action will require a significant change in thinking. The current model is clearly broken.
It’s very nearly forty years since the UK joined the European Economic Community, the body which has now evolved into the European Union. The last – and indeed only – time that Britons gave their assent to our membership was way back in 1975, meaning that no-one under the age of 55 has ever been able properly to register their support for, or opposition to, UK membership.
Public dissatisfaction with the cost of the EU and the massive burdens it places on the UK and businesses here remains as high as ever. Now, with the prospect of a new referendum on the issue being mooted (albeit not for another few years), people are increasingly wondering what the future holds for UK-EU relations and what form they might take if a decision is made to withdraw from the EU in its current form.
The principal benefit of EU membership is access to the single market covering much of the continent. However, we do not need to be a member of the EU to enjoy that access: it is afforded to members of EFTA under the European Economic Area (EEA) agreement of 1994, which, in turn, are not bound by all manner of other EU policies covering areas such as foreign policy, home affairs and agriculture.
Some claim that the EFTA model amounts to “government by fax”, whereby countries have to fulfil all kinds of obligations set by European Union legislation over which they have no influence.
But this myth is exploded in a paper by TPA Research Fellow, Dr Lee Rotherham, Controversies, which considers this very issue, among others.
He cites figures from the Norwegian and Icelandic governments showing that those EFTA members only have to enforce a small proportion (10%-20%) of EU regulations and that there are ample opportunities to influence new EU legislation in areas covered by the EEA agreement. And all that without the common supreme court in the form of the European Court of Justice and with the European Commission having no power to fine you.
Then there is Switzerland, which is outside the EEA, but has its own separate trading agreements with the EU, meaning that Swiss laws only have to be compatible with EU law when there is an existing bilateral sectoral agreement. The Swiss Government estimated a few years ago that joining the EU would cost 3.4 billion Swiss Francs per year (net), whereas continuing with the current arrangements was costing a fraction of that, just 557 million Swiss Francs per year.
Rotherham comes to the following conclusions:
“The image of the “fax democracy” is far from the reality. The claim by supporters of full EU membership (who strangely tend to come from EU countries themselves) that EEA countries have to endure rules just faxed through from Brussels to their parliaments is far from the reality. If there is such a thing as a fax democracy, it applies rather to the full member of the EU, and particularly where an issue is now being decided by QMV. Reflect for a moment on when the Commons last rejected an EU law.
“The EEA proves that there is no uniform model of EU association. Countries already can and do pick and choose what form of association they want with the EU. Provided no politician rises to power seeking closer cooperation (at which point ratchet principles apply), association countries can retain their status for as long as they like. This is before we even reflect on the differing levels of cooperation contained in EU treaties with countries spread even more distantly across the world, for which Canada provides just one more potential trading model.
“The comparative cost for associated members is clearly far lower than for full members, and definite ‘pick n mix’ principles apply. More damaging regulations can be avoided, while like goods are still treated with trading parity. Meanwhile, domestic business does not have to face the same burdens; more of the economy can escape red tape; less acquis is required since issues beyond trade are exempted; and democratic accountability continues for decisions reached through the EEA, and continues unabated in the majority of areas across the board.”
Taxpayers seeking better value out of our relations with the EU should take note.
Reacting to the announcement of a cut in the European Union Budget, Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance (TPA), said:
“It is completely unacceptable that while hard pressed families struggle to make ends meet, Britain’s contributions to a dysfunctional EU will increase.
“David Cameron has done well to help secure the first ever cut in the EU Budget, but with a reduced rebate, the final deal is anything but good for British taxpayers.
“Any moves by the President of the European Parliament to reject this modest budget cut via secret ballot would be a disgrace and would expose yet again a huge democratic deficit in Brussels.”
European national leaders are back to the negotiating table in Brussels today to try and strike a deal on the next seven years of EU spending after initial negotiations broke down in November 2012.
The original budget for 2014-2020 proposed by the EU Commission came in at over one trillion euros, representing an increase of an eye-watering 5%. The latest proposal is shy of that one trillion euro figure, but would still mean an increase in spending by the European Union.
Taxpayers’ money is already being wasted in the EU; in fact the European Court of Auditors has refused to sign off on the EU accounts for eighteen years in a row. At a time when many government departments have made real-terms cuts of more than 30% since 2010-11, it is insulting for the EU to be demanding even more from British taxpayers.
The Commission’s proposals also reek of hypocrisy – the EU is the first to demand that member states make cuts, so it is about time they took their own advice and started getting their own spending under control rather than asking already hard-pressed taxpayers to cough up more cash.
David Cameron cannot back down during these negotiations and must seek a cut in the EU Budget. For him to return to the UK with anything less would be a bitter blow for British taxpayers. People simply won’t be prepared to sit back and accept the Brussels bureaucracy swallowing up even more of their cash.
Reacting to the speech David Cameron has just delivered, Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance, said:
“It is absolutely right that the Prime Minister should be seeking a better relationship with the European Union for the UK. When they see how the EU institutions spend our cash, it’s little wonder that the British people are crying out for fundamental change, not just tinkering at the edges.
“It is also essential that whatever deal he secures is put to the people in a referendum: as of today, no-one under the age of 55 has had the opportunity to have their say on this issue, so a referendum is long overdue.
“However, Mr Cameron cannot necessarily afford to wait until 2015 before embarking on this renegotiation: as efforts continue to deal with the ongoing eurozone crisis, there are likely to be considerable changes in the structure and nature of the EU sooner rather than later. This will have big implications for the UK and will present the exact opportunity we require to seek a better deal from our continental partners.
“Mr Cameron must also continue to make it clear that he will countenance withdrawal from the European Union if our continental partners do not agree to the better deal he proposes for the UK. If not, he will have surrendered our strongest trump card before even entering the negotiating chamber.”
Writing for City A.M. Matthew Sinclair argues that the latest EU budget row is about the ultimate objectives of the Union, not just how much money it wastes in the process:
THE EU summit in Brussels last week ended the way most people expected: no agreement. The deal on the table from Hermann van Rompuy – president of the European Council – was for a €973bn (£787.5bn) budget over seven years in 2011 prices. It was significantly less than the over €1 trillion budget originally proposed by the European Commission.
Many in Brussels back the European Commission and regard David Cameron as an utterly unreasonable eurosceptic for insisting on at least a real terms freeze in the Budget. Hannes Swoboda MEP – president of the Progressive Alliance of Socialists and Democrats group, which Labour MEPs call home – said “it is unacceptable that the majority of member countries are letting themselves be blackmailed by Cameron, who is permanently threatening to block progress in the EU”.
Tim Aker is the Campaign Manager at the new campaign Get Britain Out
We currently pay £53 million a day into their coffers as our gross contribution. Professor Tim Congdon has estimated our overall cost tallies to £150 billion a year, that is the cost of regulation and associated costs our EU membership brings.
Yet they haven’t stopped there, they are still content to spend and squander more of our money. They enforce austerity onto Greece, Spain and Portugal, yet they don’t practice what they preach. Any plans to cut the EU budget are met with reactions as if it was the end of the world.
Last month Get Britain Out uncovered an EU plan to use taxpayers’ money to propagandise the benefits of the EU to British citizens. A report on the European Year of Citizens 2013 forecast to spend €2 million on this exercise. All of it is your money.
Another EU scheme aims to use taxpayers’ money to pay for unemployed EU workers to gain interviews in other EU countries at £250 a go. How do you think this feels to our one million young unemployed? The EU won’t pay them to resettle from Bath to Birmingham. Yet come from Brussels to Bridlington and the EU will pay you to the tune of £830 a pop to relocate.
This is just the tip of the iceberg in the EU’s record of wasteful spending.
In every Budget, whichever party is in charge, there is a bit about reducing the extent of tax avoidance and evasion. Clamping down on tax dodging always sounds like a big free lunch. Politicians find the prospect particularly appetising when they are having to make tough decisions in other areas, balancing spending people want with taxes they hate.
It is never quite as easy as it sounds though. Crackdowns too often drive people to avoid taxes in different ways (and the avoidance strategy of last resort is always leaving the country) rather than making a lasting difference. Building a simpler tax system with fewer loopholes is a more credible solution but the current Government’s efforts show the huge political challenges making that happen on a revenue neutral, or revenue raising, basis. We really need tax cuts and tax reform, as the 2020 Tax Commission set out. But, in the meantime, there is a simple way for politicians to limit tax avoidance and evasion: stop doing things that make the problem worse.
There have been plenty of examples of that happening in the past. For example, I wrote in Let Them Eat Carbon about how the European Union Emissions Trading Scheme enabled carousel fraud, allowing criminals to make a fortune out of Value Added Tax. That mistake has been made now. But there are other areas where the Government can still avoid new regulations that might increase tax avoidance and evasion.
To give one important example, there is good evidence that tax evasion is less likely when people are using credit and debit cards than it is when they use cash. In an industry study, Friedrich Schneider – a well respected expert on the shadow economy – finds a strong correlation between the extent of electronic payments and the size of the shadow economy as a share of the overall economy.
If we want to limit tax evasion, it would be really bad news if fewer people used cards, and more of them paid cash. Unfortunately, as the Don’t Discard campaign from MasterCard points out, that could be the effect of the European Union interfering with our payment system. Despite the fact that the European Commission’s own research finds that interchange fees in Britain – at least for credit/charge cards – have “tended to decrease”, they are proposing to regulate the rate. Interchange fees are effectively the charge a retailer pays when a customer uses a card. The Don’t Discard website points to Australia’s experience as a warning about what that could mean:
In 2002 the Reserve Bank of Australia reduced interchange fees by some 50%, saving retailers AU$850 million a year. Unfortunately, this has meant consumers are paying some AU$500 million more in additional card use fees to cover the shortfall while the benefits have declined. This has translated into 22% more in annual fees for standard credit cards and 77% more for reward cards.
Not only would that be an unwelcome new charge for consumers. It would also almost certainly reduce the extent of electronic payments. Particularly for those marginal customers who are already most likely to pay with cash, and where transactions are most likely to fall through the net. It is hard to see how more regulation in this area is right for Britain where the market is working relatively well. And it could mean more tax evasion and more of a hole in the public finances for the Government to try and fill.
Another example is plain packaging for cigarettes, which could also make it easier for people to evade taxes (often without even knowing it).
HM Treasury has plenty on its plate already. But if politicians and officials there really want to ensure that Britain’s tax base doesn’t slip through their fingers, they can’t just think about their own policies. They also have to keep an eye on what other Departments are doing and what the European Union is up to. If they don’t do that, and make sure they ask serious questions about this kind of new regulation, they will squander all of the hard work and political capital that goes into the Budget each year.
The Spectator reported today that David Cameron will, before Christmas, announce a referendum on his renegotiation of the UK’s membership of the European Union should he be re-elected. Quite what this means, and indeed whether it will actually happen, is unclear.
As a prelude to this theoretical referendum, the government is undertaking a “Balance of Competencies” review to scrutinise the impact the EU has on Britain. This is good news. But whilst a review of the EU’s influence is long overdue, this doesn’t go far enough and is not the “comprehensive audit” the Foreign Secretary claims it to be.
The TaxPayers’ Alliance has, for years, called for a full, frank and fair analysis of concrete (red tape, Single Market value etc.) and indirect (democratic deficit, effect on stability in Europe) costs and benefits to be conducted by all government departments. On at least two occasions, the Treasury has attempted to do just this only for politicians to pull the plug when the numbers started to emerge.
For far too long taxpayers have seen vast sums of their money shovelled directly into the furnaces of the Brussels gravy train whilst the true, total costs resulting from the burdensome regulations bureaucrats lumber on British business remain uncalculated.
The European Union knows how to waste money and there are few greater nonsenses than the monthly charade that is known as the “travelling circus” to Strasbourg.
Every month, all MEPs, staff and hangers-on pack up their bags, offices and kitchen sinks in Brussels and relocate for a few days 400 kilometres away across the French border in Strasbourg. The farce is estimated to cost taxpayers over €200 million per year.
Even the MEPs have come to view these Strasbourg sittings of the European Parliament as nonsensical, having voted earlier this year by 429 to 184 in favour of settling for a single seat.
I appeared on Euronews last week to discuss the issue, finding common cause with Yorkshire Lib Dem MEP Edward McMillan-Scott, who has long been campaigning for an end to this dual seat arrangement. You can watch the clip above.
However, the MEPs are powerless to change the arrangement: the Strasbourg seat is now enshrined in the European treaties, so it would need unanimity at a European Council meeting to make a change.
Ashley Fox, the Conservative MEP for South West England and Gibraltar, has just launched an e-petition, urging the Prime Minister to take the issue to a European Council and demand the necessary change to bring an end to the Strasbourg circus. Click here to add your signature.
Last Monday myself and Matthew Elliott, along with Dan Mitchell from the Cato Institute in Washington DC and Zilvinas Silenas and Kaetana Leontjeva from the Lithuanian Free Market Institute, ventured into the European Commission’s headquarters in Brussels. We were there to meet Algirdas Šemeta, the Commissioner for Taxation and Customs Union, Audit and Anti-Fraud, and discuss European Union proposals to introduce a new tax and harmonise existing business taxes.
The arguments that the Commissioner used to justify a Financial Transaction Tax were actually remarkably similar to those deployed by movie star Bill Nighy. My article here, with a video of our debate on the issue for Channel 4 News, is still a good summary of the state of the debate. We looked at it in more detail in Sections 5.1.3 and 6.1.3 of the Single Income Tax Report. I remain convinced that this tax would be yet another unwarranted burden on savers and reduce people’s wages. It would hurt Britain’s economy in particular and we shouldn’t put up with that any more than the French would put up with a European tax on red wine or the Germans would put up with a European tax on luxury saloons.
The other issue that we discussed was the Common Consolidated Corporate Tax Base (CCCTB). He tried to sell the idea as a simple means of making it easier for big companies to do business across Europe. And that any attempt to apply a common rate and establish a tax cartel that would see all of us paying more over time could be blocked as European Union policy on tax remains subject to national vetoes. Unfortunately what a CCCTB would do is cement in place the existing structure of taxes on capital income and make it much harder to introduce the kind of innovative new system proposed by the 2020 Tax Commission. Any change in response to changing circumstances would be subject to veto and it is easy to imagine that, as that became more and more of a handicap, the pressure for a more “efficient” system where a single country couldn’t hold up reforms would mean pressure to get rid of that veto. In the end, the ratchet would have moved forward and we would be a bit closer to being taxed by Brussels rather than governments in Westminster that we can, at least, boot out of office.
I’m not sure if we sowed any seeds of doubt in the Commissioner’s mind. He did say that it was “pleasant to get into a debate with people who have a very clear vision and philosophy” but I’m not expecting a sudden conversion to our cause. And I am certainly not won over by the European Union. While I was there I visited the Parliamentarium for a reminder of just how egregiously your money is wasted in Brussels, and the city always renews my euroscepticism. But at least we could leave the Commissioner with a copy of the 2020 Tax Commission’s final Single Income Tax report. Hopefully he will read it.
The gusts and gales of autumn are sadly approaching, but there may still be a handful of golden evenings and gilded weekends yet to come. So perhaps there’s still time to add another volume to the summer reading list for tardy deck chair sizzlers and bronzers.
Dan Hannan is a Conservative MEP and broadsheet commentator with a flair for the English language matched by few modern politicians. His latest volume, A Doomed Marriage: Britain and Europe (Notting Hill Editions) offers a stylistic treat.
The author has a remarkable ability in real life to be able to cast a relevant Shakespeare quote at you to enrich a conversation on dredging. Our attention is kept rapt as we are walked through the lot of “Greek and Italian premiers who inadvertently stumbled into the path of the EU’s combined harvester”. We happily follow with grim intent the detail on how the EU “fire hoses cash at its dependent NGOs”. The style is a delight to follow, especially when perforated with astute and novel quotes, such as that borrowed from Upton Sinclair on how when dealing with the self-interested of his own day, “It is remarkably difficult to make a man understand something when his salary depends on his not understanding it.”
The main premise of the volume can perhaps be summed up in a single and astute question: “Ask yourself this,” challenges the author. “If Britain were not already a member of the European Union […] would either of the two main parties now be arguing that we ought to join?” It is a critical question. Mr Hannan observes, for instances, that the terms for the British taxpayer arranged by Ted Heath were so bad that accession was no negotiating triumph. Indeed, while some commentators today complain of Britain having ‘missed a boat’ by not joining earlier, given those terrible terms this country could have acceded at any time: a more appropriate metaphor we suggest in turn might be of stumping up a first class ticket to end up in steerage.
The author dissects the mythology surrounding the EU: what the EU is supposedly for; what it’s meant to fight against; what it’s supposed to represent; what it’s meant to achieve, and to have achieved; and where we are meant to end up. A section exploring the “tyranny of the status quo”, Milton Friedman’s succinct and biting critique of mired government, tears into the Euroclique so devastatingly that you are left wondering if the optimal readership for this volume mightn’t be the subjects of the criticism themselves. It should be required reading for the concours for budding Eurocrats.
The book’s well-written and a pleasure to read, and even if you are familiar with the subject matter the arguments are set out persuasively, clearly, and concisely. If we have a regret it’s that it is too concise. This volume reminds us of the eighteenth century heyday of political essays rather than the chunky tomes of the twentieth century, a rapier swipe rather than a cricket bat clubbing. But if you’re after wordplay over wordage, this is for you.