Monday, 28 March 2016

EU contributions have not wiped out austerity savings twice over

The Daily Express claims that "Britain has paid more to Europe than it has saved in ENTIRE austerity drive". In particular, it asserts:
The austerity measures to reduce spiralling national debt clawed back £44 billion in the last Parliament, which critics say has come at the expense of vital public services. Being in Europe has cost the UK £87 billion over the same five years, almost double the austerity savings.
By my calculation, this is not quite correct. According to the OBR, real government spending decreased from £765 billion in 2009-10 to £747 billion in 2014-15. Cumulative savings (from spending cuts) over this period (using 2009-10 as the reference year) amount to £53.6 billion. And, according to the House of Commons Library, total net EU contributions over the same period equal £44.3 billion. EU contributions therefore equate to 83% of austerity savings––not insubstantial, but nowhere near double. 

The Daily Express obtained the figure of £87 billion by summing up gross EU contributions, rather than net ones. Our gross EU contribution encompass not only a seizable rebate but also the money we get back in the form of farm subsidies and regional development funds etc. Arguably then, net contributions are the appropriate figures, which means that 83% and not ~200% represents the proportion of austerity savings negated by our payments to the EU. 

However, it could be argued that using 2009-10 as the reference year is not the correct way to estimate austerity savings. After all, if government spending remained at 2009-10 levels, and the economy continued to grow, it would come to represent an ever smaller share of GDP. Yet government spending in 2014-15 amounted to 40.8% of GDP, which happens to be almost identical to the long-run average (the average from 1948 to 2014 being 40.7%). It therefore seems defensible to use 2009-10 as the reference year for the time period in question. 

Nonetheless, if instead of assuming that government spending would have stabilised at 2009-10 levels in the absence of austerity, one assumes that it would have stabilised at 43% of GDP after 2012-13, then cumulative savings from 2009-10 to 2014-15 actually amount to £78.7 billion. Under this assumption, EU contributions equate to only 56% of austerity savings. 

No comments:

Post a Comment