07 September 2016

CEPS: The Impact of Brexit on the EU Budget: A non-catastrophic event

This paper finds that the impact of Brexit for the EU budget will be rather small due to the effects of the UK rebate and to the potential contribution the UK would be obliged to make as a condition to obtain access to the internal market.

Given that the UK is one of the largest economies in the Europe Union – with per capita income above the EU average and therefore a net contributor – there have been concerns that the country’s decision to leave the EU could strongly impact the EU budget. On closer scrutiny, however, this paper finds that the impact will be rather small due to the effects of the UK rebate and to the potential contribution the UK would be obliged to make as a condition to obtain access to the internal market. If the UK remains outside the internal market, tariff revenues would make up a considerable share of the ‘net loss’. On balance, the authors conclude that the financial savings for the UK would be negligible and the impact on member states would be manageable. They also note that the impact on the classification of regions in EU Cohesion Policy is projected to be minimal and the European Fund for Strategic Investments is not affected by changes in membership.

Policy Recommendations

If or when the UK government triggers Art. 50, it should consider the option of remaining until the end of the current Multiannual Financial Framework and simply stepping out from the next programming period. This would prevent a policy vacuum on regional development and facilitate trade and internal market negotiations. Despite the manageable impact of Brexit on the EU budget, this is no time for complacency. The budget is exposed to considerable risks from further external shocks and the flexibility instruments have reached their limits. Brexit should be seen as an opportunity to fundamentally rethink the way in which the budget is designed and negotiated. 

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