Will Straw: A British-led ‘Grand Bargain’ could cut the EU budget by 25%

Will Straw is an Associate Director at IPPR and the founder of Left Foot Forward. His research interests include globalisation, Europe, climate change, energy and transport policy. Follow Will on Twitter.

The week started with an unusual outbreak of political consensus as Ed Balls and Douglas Alexander joined David Cameron in calling for cuts to the EU budget. Tomorrow, the debate moves to the floor of the House of Commons, as backbenchers have their say on the Prime Minister’s approach.

Both Labour and the Government are on solid ground. The Common Agriculture Policy is a distortive anachronism which hoovers up over 40 per cent of EU spending despite making up just 2 per cent of economic activity across the region. Structural payments are inefficient with Britain transferring cash to poor parts of Germany (and vice versa) alongside the more justifiable projects in the former Communist states of Eastern Europe.

Meanwhile, much EU administrative support is wasteful. Readers of this website will need no reminding that it costs European taxpayers £150m per year for MEPs to take their monthly sojourn from Brussels to Strasbourg. Worse, it generates almost 20,000 tonnes of CO2 emissions.

Despite the obvious case in favour, achieving budget reform is a tricky business. France is wedded to the CAP while many smaller countries like the European largesse from which they benefit. Neither Cameron’s approach nor the Balls/Alexander plan set out how to overcome these obstacles. Any veto will simply result in the 2013 budget being rolled over at greater expense to the UK.

The only way to break the impasse is for Britain to attempt a ‘grand bargain’. This would entail putting our £3 billion rebate on the table in exchange for an EU budget that leaves Britain better off than before. New research by IPPR shows that a 25 per cent reduction in the EU budget could do exactly that and leave enough left over to contribute to sensible projects to enhance much-needed growth across the continent.

Open Europe have shown that cutting CAP payments by 30 per cent and restricting structural funds to countries with below 90 per cent of EU GDP, as Tony Blair proposed in 2005, could save £35 billion per year from the EU budget. This saving would mean that Britain could give up its rebate and still end up saving £1.2 billion per year on our EU bill. That would be enough to compensate all the regions in the UK that would lose out from an end to structural funds.

Every country across Europe would get money back with France and Germany gaining most given the large size of their existing contributions. This would be enough for France to compensate their farmers and for Germany once again to take Britain seriously and shape a consensus for a smaller budget. Italy, the Netherlands, Czech Republic, Slovakia, Slovenia and the Baltic states are all countries that could be expected to support the reforms.

The ‘grand bargain’ would leave sufficient cash to raise the EU’s budget for jobs and growth by 55 per cent to £18.3 billion. This new money should be focused on helping countries on the periphery of the Eurozone make structural reforms to their economy, increasing resources for joint research and development projects, and creating an EU-wide industrial strategy to revive and expand capital markets to finance large European infrastructure projects in the fields of transport, energy and information technology.

Pro-Europeans in Britain should support this package since public opinion sours every day that the EU wastes taxpayers’ money. Reforming the budget so that it actually delivers long-term benefits is the best way of showcasing why it is in Britain’s best interest to remain part of Europe.  Our leaders must be willing to negotiate to get a better deal.