Paying for bad habits: sex work and drugs lift UK’s EU bill

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Listening to EU officials describe how Britain pays its annual EU contribution brings to mind George W Bush being questioned about one of his administration’s budgets.

Flicking the pages before assembled journalists he said: “There’s a lot of pages, a lot of lines and a lot of numbers.” To all but a few, the addings up and subtractings that go on in Brussels make little more sense.

One of the few things that does seem clear is that Britain is paying for its bad habits. Brussels needs more cash this year to cope with overspent budgets. And while it might seem unfair to tax a country for needing a bigger crutch than others in the EU club, relatively speaking, the UK’s GDP has jumped courtesy of new estimates of the nation’s consumption of drugs and use of prostitutes.

The EU applies its complex calculation of how much member states should pay into its coffers largely on GDP levels. The bigger the national income, the bigger the contribution. So far, so simple.

However, earlier this year the UK’s GDP was given a £10bn boost after officials calculated that sex work generated £5.3bn for the economy in 2013, with another £4.4bn coming from the sale of cannabis, heroin, powder cocaine, crack cocaine, ecstasy and amphetamines.

Other countries have been affected too after the EU calculated how much of their hidden economies should be brought on the books. Greece faces a larger contribution despite losing a fifth of is national income since 2009. Italy is another victim, though arguably it has only included a fraction of the mafia’s business in its GDP calculations.

More importantly, Britain is paying more because this year it is simply bigger than 18 months ago while other countries have stood still or contracted. Like soldiers in a lineup who find themselves volunteering for toilet duty after everyone else has taken a step back, the UK Treasury is paying for being one of the few among the EU’s 27 economies to strengthen this year.

The EU budget is calculated on a rolling monthly basis. It has been revised seven times this year. Go back a couple of years and the UK contribution fell substantially. In 2008, a whopping £4.9bn rebate and £4.5bn of payments to farmers and the social fund brought the net contribution down to £3.3bn. By 2010 this net contribution figure had risen to £7.4bn and an estimated £8.6bn in 2013 following a dramatic jump in gross payments from £12.6bn in 2008 to £17.2bn in 2013.

This year every GDP number has pushed the UK nearer to the top of the growth league. By the autumn of last year Britain was outstripping all the leading eurozone countries. By this spring it was trouncing the US.

So under the EU’s rules, drugs or no drugs, it was inevitable the UK contribution would rise and the rebate fall. The Office for Budget Responsibility, which makes independent forecasts of the government’s finances, expected a rise this year before a fall in 2017.

But the stagnation in GDP growth across the EU could continue for many years before any improvement stabilises the funding balance.

And if the UK outstrips France and Germany on improving the public finances, then higher contributions will be made without the tax receipts to pay for them.

The only icing on the cake is that the CBI puts the value of UK membership of the EU at between £62bn and £78bn a year in extra trade and intangible benefits, although those are not figures you are likely to hear from Nigel Farage. More numbers to bamboozle the President Bush in all of us.

Powered by article was written by Phillip Inman, economics correspondent, for The Guardian on Friday 24th October 2014 20.03 Europe/London © Guardian News and Media Limited 2010