Is there a "£20bn black hole" in the EU's finances?

Published: 6th Jun 2016

In brief

Claim

There is a £20bn ‘black hole’ in the EU’s finances, which will cost the UK an extra £2.4bn after the referendum.

Conclusion

By December 2014, the EU owed £19.4bn in payments agreed in the past to support poorer regions. The UK won’t be forced to make additional payments outside of its regular contributions.

“The EU’s unpaid obligations threaten the UK with an extra £2.4 billion bill after the referendum.”

Vote Leave, campaign website

“And now we find that there is £20bn billion black hole in the EU's finances.”

Boris Johnson, 6 June 2016

What is the ‘black hole’?

The EU had a backlog of unpaid claims worth 24.7bn euro by the end of 2014. At current exchange rates this equals £19.4bn.

The bulk of the money owed was through the Cohesion Policy, which funds investment in poorer EU regions (including some parts of the UK). These unpaid claims equalled 7% of the planned cohesion budget of £347m for 2007-13.

Paying out against these past claims means that the EU will have less to money to invest in schemes that run from 2014-2020.

Why did this build up?

The volume of claims increased more sharply than expected from 2011 onwards, according to the European Commission.

The commission suggest the 2008 financial crisis, the 2011 Eurozone crisis and austerity measures by national governments all contributed to increasing the volume of claims.

At the same time, the ceilings which set the maximum quantity of payments were dropped in 2014.

Why could it be a problem?

The main side-effect is a reduction in the money available to fund the 2014-2020 programme.

The EU also has to pay some interest on late payments, and late payments damage the credibility of funding programmes.

How will it be paid back?

The majority of these payments are covered in the 2016 EU budget, so roughly 12.7% of them will be supported by the UK’s regular contribution. £2.4bn will have been supported by the UK.

No country will provide additional support outside their regular contribution to the EU budget. The price being paid is having less money to spend on current priorities.

 

Update 6th June 2016

In a conversation earlier today, we understood from the European Commission that it was seeking to reduce the level of these payments. That was reflected in this article when it was first published. They have subsequently clarified that the full amount will be paid.


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