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Cuts, plastic tax and visa fees: how Brussels will plug its €15bn Brexit budget gap


European Commission President Jean-Claude Juncker Picture: REUTERS/Eric Vidal

European Commission President Jean-Claude Juncker Picture: REUTERS/Eric Vidal

European Commission President Jean-Claude Juncker Picture: REUTERS/Eric Vidal

When Britain finally leaves the European Union, the bloc will face a budget shortfall of up to €15bn a year.

The current EU budget period ends in 2020, about the time that the proposed Brexit transition period is likely to finish, and ran to about €960bn from its start in 2014. Almost 75pc of that cash went on agricultural subsidies and developing poorer EU countries.

The next budget, or "Multi-annual financial framework", will run for at least five years from 2021 and be without payments from Britain, one of the major net contributors. While the total figure is subject to traditionally torturous negotiations between national governments and the European Parliament, the budget usually works out at about €150bn a year.

The European Commission has vowed that it will not rely on debt to finance EU spending, meaning that every euro has to be found from existing or new revenue streams.

So how is Brussels planning to plug the Brexit blackhole in its budget? Here are some of the ideas being floated ahead of the European Commission's unveiling of its plans in May.

1. More money from the member states

Jean-Claude Juncker, the president of the European Commission, has already called on the remaining 27 EU member states to pay more to Brussels after Brexit.

The commission must convince governments to breach the traditional ceiling in national contributions of 1pc of gross national income, a calculation that includes GDP. Mr Juncker wants the cap lifted and has claimed the cash currently costs each European taxpayer the same as a cup of coffee.

"I think Europe is worth more than one cup of coffee a day," he said recently.

Mr Juncker's Budget Commissioner has said only a "modest increase" in national contributions will be needed after Brexit. Günther Oettinger said that the Brexit shortfall would be made up half by increasing contributions and half by cutting spending.

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EU budget negotiations see the richer member states, who put more into the budget than they get out, facing off against poorer "net recipients".

2. Cuts

The commission is prepared to make some cuts but is also keen to defend expenditure, or increase it, on its research funding programme Horizon 2020 and the Erasmus+ student and worker exchange programme.

Half of the annual Brexit shortfall is slated to be met through spending cuts and Mr Oettinger has conceded that after Britain leaves some EU staff might lose their jobs.

"We may have to look at moderate cuts across the board," he said at a Brussels press conference.

The German commissioner's preference is to avoid that if possible. Instead, he champions an efficiency drive where every euro spent would be justified by the "added value" it brings to the taxpayer.

3. End rebates

Britain's EU budget rebate, famously won by Margaret Thatcher in 1984, has long stuck in Brussels' craw.

The rebate is worth an annual 66pc of the UK's net contribution in the previous year. According to the UK treasury, the rebate was worth £4.9bn (€5.5bn) in 2015. Other EU countries have their own smaller rebates but the commission is keen to use Brexit to end the national clawbacks.

4. EU-wide plastic tax

The European Commission is planning to push for an EU-wide tax on plastic bags.

If agreed by the member states, the levy would bring new money into the budget while helping the bloc to handle plastic waste. That problem has been exacerbated by China's recent decision to close its market to plastic waste and plastic reprocessing.

The tax revenue will offset the amount EU member states pay to Brussels, reducing their contributions and allowing more wriggle room around the 1pc ceiling.

Information on how the tax will work in practice are light at this stage.

But it now appears that the tax faces significant opposition from other EU commissioners, who are unconvinced of its merits. They have pointed out that the tax revenue would drop as more and more plastics are recycled. There was no mention of the tax in a recent commission strategy paper, which has lead many to suspect the idea will be quietly dropped.

5. Emissions trading system

The commission is mulling whether to take control of the revenue from the EU's Emissions Trading System (ETS), the cornerstone of its fight against climate change.

The ETS is the world's largest carbon market, where allowances for carbon emissions can be bought and sold. Each year a company must surrender enough allowances to cover its emissions. As an incentive to encourage them to go green, any unused allowances, equivalent to a tonne of CO2 emissions, can be sold.

Carbon allowances are given to national governments, which sell or give them to companies. This is a source of revenue for member states, who can spend the profits as they wish.

The commission has suggested that it takes control of selling the allowances, with the revenue going into the EU budget and offsetting all or a proportion of countries' contributions.

If recent reforms prove successful and the carbon price rises from its current price of under €8 per tonne to the hoped-for heights of €30, the commission could have a cash cow on its hands.

6. Visa fees

Brussels is also planning to drum up cash by raiding revenues from the EU's new border system, which from 2020 will charge €5 to non-EU nationals from countries that do not need visas to travel to the EU.

The fee is already likely to be upped to €7, EU sources said, after talks between national governments and the European Parliament.

After Brexit, British businesspeople and tourists are likely to be included in the 30 million people who will pay the fee every year.

7. Britain keeps paying Brussels

Britain has signalled that it would like to remain part of several EU funding programmes after Brexit.

This could include the Horizon 2020 research initiative and the Erasmus student and worker exchange scheme.

Mr Oettinger has hinted that may be possible but would require some financial contribution from the UK.

Far more controversial is whether Britain is forced to pay in return for access to the single market, as, for example, Norway does.

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