Wednesday, 18 November 2015

Cameron Watch - how much does Norway pay ?



Recently, our Prime Minister, went out of his way (all the way to Iceland in fact) to disparage the so-called “Norway option”  (Norway is outside the political structure of the EU but has full access to the European Single Market via the European Economic Area (EEA) agreement).  

In this post, I want to examine this quote from David Cameron:
"Norway actually pays as much per head to the EU as we do ..."
Now it should be noted that the amount spent on EU contributions is a very small proportion of total Government spending (£732 billion in 2014)   – so the key question here is not how much money the UK could or could not save - it is whether David Cameron's claims stand up to scrutiny.

Relative size of UK & Norway 

In comparing Norway’s EU payments to the UK’s contributions to EU budget, the first thing to bear in mind is the relative size of the nations population and economy :
  • UK population = 64.51 million, Gross National Income (GNI) = $2,754 billion.
  • Norway population = 5.136 million,  Gross National Income (GNI) = $529.3 billion.
In other words the UK population is about 12 and a half times bigger than Norway's, the UK economy is just over 5 times bigger than Norway's.

Norway’s EU  Payments:

Norway pays for Single Market access via EFTA.  In 2014, EFTA’s annual budget was approx. 22,360,000 swiss francs of which Norway paid a 55% share, which comes to approx. £8.5 million per.annum (assuming an exchange rate of 1.45 swiss francs to £1). This is just £1.65 per head, or less than the price of 3 mars bars – the price for Single Market access via EFTA is negligible.

Norway also pays for participation in various EU programmes (e.g. Erasmus+, Horizon 2020, Copernicus etc).   You may have seen some stories in the papers (particularly the Guardian) promoting the idea that UK science will lose out on these programmes and funding if the UK were to leave the EU – in fact these programmes are open to non-EU countries, such as Norway, and even including non-European countries such as Israel.  The UK will continue to participate in these programmes regardless of the Referendum outcome – they are a good example of the kind of international collaboration the UK seeks and offer good value for money.  In 2014, Norway’s contribution to these programmes was €306 million =  £255 million (assuming an exchange rate of 1.2 euros to £1).   Over the period 2007-13, Norway received approx. €1 billion in funding back from these programmes, so the net cost of Norways participation in these EU programmes is reduced by on average £120 million per annum.

The EEA Grants form part of the EEA agreement whereby the three EFTA EEA countries provide direct financial aid to the former eastern-bloc countries within the EU – it is worth noting that these grants are paid directly to recipient countries – the money is not filtered through Brussels.  The three countries contribute to the grant scheme according to their size and economic wealth (Norway = 95.8%, Iceland = 3% , Liechtenstein = 1.2%). Of the €993.5 million set aside for the five-year period 2009-14, Norway paid €951.7 million, which over 5 years is an average of £159 million per annum (assuming an exchange rate of 1.2 euros to £1).

Hence, I estimate Norways mandated EU payments for 2014 to be £423 million gross = just over £82 per head gross or alternatively  £303 million net  = just under £59 per head net  (after allowing for funding Norway received back via the EU programme).  Based on the relative size of the UK economy, the UK would pay approx. £2.2 billion gross per annum in the same circumstances (i.e. 5 times as much as Norways gross payments)

Norway also pays "Norway Grants", which are often mistakenly confused with the EEA grants.  Norway has set aside €804 million for the current five-year funding period of “Norway Grants”, which is an average of £134 million per annum.  These grants are purely voluntary (as a foreign policy initiative by Norway) and are not part of the EEA agreement –other EEA countries do not contribute to these grants.   Daniel Hannan relates how when asking Icelandic civil servants why Norway paid these extra grants “two civil servants looked at each other awkwardly and one said: “Because those Norwegian Euro-officials are f***ing crazy!”  


UK contributions to EU

HM Treasury report on the 2014 EU budget indicates that in calendar year 2014, the gross UK contribution was £19.234 billion, before the UK rebate of £4.888 billion, i.e. £14.346 billion gross (after rebate) = £222 per head. In addition, the UK received £4.539 billion back in EU funding (via Common Agricultural Policy, Common Fisheries Policy  and Regional Development funds), leading to a net figure for UK contributions of £9.458 billion net= £147 net per head.  Norway’s net contribution figure per head is less than half this figure.

Comparing Norways payments to UK contributions

Comparing the UK’s contributions with Norways payments is complicated by a number of factors:
  • Norway does not participate in the EU’s Regional Development programme
  • Norway does not participate in the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP)
  • The UK has a unique rebate (primarily to offset its unusually high liability under the Common Agricultural Policy)
Perhaps it would be most straightforward to simply compare what the UK would expect to pay if it followed the “Norway option” with what it contributes to the EU today.  It is reasonable to assume that the current funding the UK receivs from the EU for CAP, CFP and Regional Development would simply be replaced by UK Government funding to the same level - with the advantage that how the funds are spent would be decided locally in the UK.  Hence, the UK could expect to pay  £2.2 billion (UK equivalent to Norway’s gross payments in 2014 based on relative size of the economies) + £4.539 billion (to replace lost EU funding) = £6.739 billion. This is less than half the £14.346 billion gross (after rebate) actually paid by the UK in 2014.  Note that figure does not even count in the funding the UK receives back from the various EU programmes (Horizon 2020, Erasmus + etc) - the UK has historically been a major beneficiary of funding from these programmes. 

Conclusions

The amount spent on EU contributions is a very small proportion of total Government spending   – so even a halving of UK’s contributions is not going to be a decisive factor in the referendum.

However, the above analysis suggests David Cameron’s claims again fail to stand up to scrutiny – Norway appears to pay less than half the UK amount per head - his trustworthiness will be a decisive factor in the EU Referendum.

A number of other plus points for the Norway option have also emerged in this analysis:

  • Participation in EU programmes (Erasmus+, Horizon 2020, Copernicus etc) 
  • Norway is outside of the Common Agricultural Policy (CAP) 
  • Norway is outside of the Common Fisheries Policy (CFP) 
I’m calling this as strike 2 for Mr Cameron on the Norway option.



I've summarised the payment figures for 2014 in table below:

























Related posts:
Norway has no say over the rules ?...
Norway a bad option ?
Keeping the score on The Norway Option...

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