Richard North, 09/11/2014  

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From the announcement on Friday of Osborne's great "victory" on the budget supplement, it's taken us two days to get a handle on precisely where we stand, but I think we've got it fairly clear now.

It's best explained by a series of analogies. Firstly – as to the payment – we can make a comparison with the way some car insurance companies do business. For instance, my insurance company has the irritating practice of charging a premium (say, for the purpose of argument £500 a year) and then offering a "cashback" after the policy has run for six months - let's say £200.

Thus, to get the car insured, I have to pay £500. That sum goes out of my account and is transferred to the insurance company. Then, six months later, they send me a cheque (actually it goes to Mrs EU Referendum, but that's another story) for £200. I've paid £500 but get back £200 so the insurance has cost me only £300 – albeit we've had to wait for the money reducing the bill.

So it is with this £1.7 billion. As of 1 December, the UK government owed the EU that amount of money. But the cash sum, as part of our net contribution to the EU budget, is automatically subject to a "cashback" – called the rebate - (of approximately 40 percent), payable about two years after the principal is remitted.

Thus, as it stood on Friday morning, we owed the Commission £1.7 billion – due to be paid on 1 December. Then, in about two years time we would have got our "cashback" of roughly £700 million (or thereabouts). Osborne says £850 million, but that's a matter of detail. For convenience, though, let's go with his £850 million.

However, as of Friday afternoon, we learn that Osborne has been able to negotiate a split in the payment. It is now in two halves. The first half is payable on 1 September next year – without interest – after the next election.

Then, before the second half becomes due, the "cashback" (i.e., rebate) which would not normally have been returned until 2016, has been brought forward to become payable early. This has been set against the second sum due. As a result, the second half will not have to be paid.

Politically, this is quite an astute move. It enables Osborne to claim a "victory", from not paying something which, in the full course of events, we would get back anyway. It is a victory of sorts, but not as we know it, Jim.

As to the nature of that "victory", let's resort to another analogy. Imagine you've settled the annual subscription for your health club – given you are mad enough to pay for such things. You have transferred £1000 but now the club comes back to you and says its recalculated your subscriptions for the past ten years and finds you've underpaid by £400. This you now have to pay this, on top of the £1000 you have already paid.

Thus you go back and tell the missus she can't have that object of her dreams, because it's going to cost more for you to run on your treadmill three times a week. The sofa in the living room beckons.

Now you talk to the club and find that the extra money is subject to a rebate of £200 pounds – the famous "cashback" we've been talking about. You go rushing back to mussus and tell her, "all is saved" – you only have to pay an extra £200. Victory is declared, the Champagne is broken out and the bed reverts to double occupancy.

This is roughly what has happened (except the bed bit – I made that up). We actually never did owe £1.7 billion, although we did have a liability to pay that amount, offset against a rebate at some time in the future. But, having told us it was owed, Mr Cameron and Mr Osborne both are able to declare they have "saved" us £850 million, thereby turning defeat into victory.

And, to look at it, most of the public has bought it. In a Survation poll, 42 percent agreed this is "a result for Britain", against 33 percent who disagree. Furthermore, even though the result would have been no different in the longer term had Mr Miliband been handling the issue, 35 percent thought he would have secured worse deal if he had been prime minister.

Whether this whole thing was a set-up, or is simply the happy ending after a series of blunders, remains to be seen. But the other effect is to firm up opinion against the EU. The Survation poll finds support for leaving is at 54 percent, while just 31 percent want to remain in the EU.

That compares with the October Ipsos Mori poll which had 56 percent wanting to stay in the EU, compared with 36 percent "outers" and the later YouGov poll which had 44 percent wanting to leave, with 35 percent wanting to stay in. 

There can be little doubt that the driving force behind this change in sentiment has been the £1.7 bill, which means that the combination of the European Commission and the handing of the affair by the Conservatives has done more to alienate the public from the EU than months of posturing by Mr Farage and his supporters.

But the response to the handling of the debt also demonstrates, once again, how easily fooled certain sections of the population are. This referendum, if we get it, cannot be taken for granted.


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