The fall in sterling will mean that Britain’s contribution to the EU budget next year is set to rise by hundreds of millions of pounds, although contributions will decline in euro terms because Britain’s economy appears smaller. This will leave both the UK and the other Member States out of pocket, with the EU having to already make up a shortfall of €1.7 bn euros this year as a result of the drop in sterling. This news is likely to increase tensions between the UK and the EU as Chancellor Phillip Hammond prepares to announce projected figures at the upcoming Autumn statement. These figures will also put additional pressure on the government from ‘brexiteers’ (those who backed Brexit) to negotiate a swift exit from the European Union, in an effort to save public finances. The complex EU budgeting process means that Britain’s contribution throughout 2016 has remained stable (because the rate is set at the final day in December of last year and held steady for 12 months), while sterling has devalued by 15% from €1.37 euros to €1.16 euros. When calculated in euros, Britain’s net contribution has therefore decreased by €1.7bn euros this year and the EU commission will need to dip into a pot for accumulated competition fines to make up the shortfall. In short, while Britain did not financially lose out this year, it will do so next year as more sterling will be required to meet its EU contributions (set in Euros).
Sign up for our newsletter and get the latest to your inbox.