Headline numbers: Osborne plan makes little difference

George Osborne in Brussels on 7 November Image copyright Getty Images

Remember the £1.7bn extra bill the UK received from the European Union last October?

David Cameron said: "If people think I'm paying that bill on 1 December, they have another thing coming."

George Osborne went into negotiations with the EU and claimed to have halved the bill, delayed payment and avoided punitive interest rates.

But now we've had more details of that deal and it seems the benefits from it were negligible - although that is disputed by the Treasury.

The initial situation was that the UK would have had to pay £1.7bn on 1 December and could have expected to get about half of that back in its usual rebate a year later.

The government maintains that having the rebate applied to the extra payment was a result of its negotiations, but Prof Iain Begg an expert on EU finance from the London School of Economics says: "The rebate was never in any doubt and was raised as a red herring by the Treasury."

Mr Osborne said that following negotiations, he would instead be paying two instalments of £450m each in July and September 2015.

The details of what that means for the public finances were published in full by the Office for Budget Responsibility (OBR) as part of its release accompanying the Autumn Statement earlier this month - it's table 4.34 on page 162 if you're interested.

It tells us the effect of the payments in two ways: what it means for the deficit and what it means in cash terms.

For the deficit, the situation is now that the transfer of £1.7bn was logged as expenditure in the public finances on 1 December, and we expect to get £800m back in 2015-16. That sounds remarkably similar to the situation before the negotiations.

In cash terms, the UK will make a net payment of £900m in two instalments 2015-16. How much difference will that make? Well it means that the government will not have to sell the gilts to raise the money until July and September 2015, so it saves on the interest it would pay to borrow £1.7bn for a bit less than a year.

The government currently borrows pretty cheaply, so that would be unlikely to cost more than £10m, which is not a lot of money in government finance terms.

"This illustrates that it was all smoke and mirrors," says Jonathan Portes from the National Institute of Economic and Social Research.

"The situation with the deficit is almost identical to what it's been all along and the negotiations didn't change that in any significant way."

The Treasury says that concentrating on the effect on the deficit is "highly misleading".

Its spokesman told BBC News: "The £1.7bn bill has been halved, and the money will be paid in instalments next year."

But the thing is, if you're a government paying very low interest rates, the deficit matters more than the actual cash.

Many commentators assumed that the point of Mr Osborne's negotiations was to shift the payment on to next year's deficit - and I agreed with them.

Now it turns out that the only advantage was to save a little interest.

More on this story

Related Internet links

The BBC is not responsible for the content of external Internet sites