British Contributions to the EU Budget

What is the EU Budget?

The UK has contributed to the budget of the EU ever since its accession to the union in 1973.

Unlike many supranational organisations, the EU has specific policy tasks assigned to it and therefore requires a working budget to deliver these objectives. However, the political and media attention paid to the EU budget belies its relatively small size: in 1999, it was 96.93 billion euros (£66.85 billion); just 1.11 per cent of member states' GNP and 2.5 per cent of their total public expenditure.

This is because most of the biggest spending items - defence, education, health, social services - remain reserved to the member states, while many of the EU's responsibilities, such as market regulation, involve little cost. The EU's biggest spending commitment is the Common Agricultural Policy (CAP), which accounts for between 40 and 50 per cent of all expenditure.


Background

The Treaty of Rome 1957 envisaged that after a transitional period of 'national contributions' funding the budget, the EEC would be funded under a system of 'Own resources', which effectively fixed national contributions to the EU budget. However, disagreements over the nature of the agreement delayed its implementation until 1970.

The Own Resources, since 1988, comprise:

Common customs tariff duties and other duties on trade with non-member countries

Agricultural levies and duties

A uniform percentage rate on the VAT assessment base (reduced at the Edinburgh and Berlin Councils)

The application of a rate to a GNP base figure

The EU was plagued by budgetary crises in the early 1980s, when the CAP was absorbing as much as 70 per cent of the budget. At the time, the GNP factor was not included and the VAT proportion was capped at a maximum of one per cent.

Conservative Prime Minister Margaret Thatcher argued from 1979 that the UK contributed too much to the EU Budget, on account of the small size of the UK farming industry. At the Fontainebleu summit in 1984, she famously 'handbagged' EU leaders into agreeing a rebate arrangement.

In 2002, the British Rebate was worth some £3 billion (5 billion euros) out of gross contributions of about £6.5 billion (10.5 billion euros). The rebate is due to continue until at least 2006.

The current budgetary arrangements were agreed at the Berlin Council of 1999, which agreed a financial perspective for 2000 to 2006. One of the key commitments was to stabilise overall expenditure and to only marginally increase CAP spending in the period, while Structural Fund spending was to be reduced. A review is due in 2004, which is likely to be dominated by the implications of EU enlargement and the need to inject sufficient funds to support the integration process. Unsurprisingly, those states who stand to shoulder the burden of any proposed increase, particularly the UK, Germany, France and Italy, have voiced major concerns about the proposal for a 1.24 per cent contribution (favoured by Commission President Romano Prodi) suggesting a figure of one per cent is more equitable.


Controversies

Since the 1980s, the EU has experienced relative budgetary peace, with most member states satisfied with the prevailing arrangements.

A major point of contention when revising the detail of the Own Resources agreement has traditionally been the issue of the CAP. The less agrarian economies of the EU are committed to reforming the CAP away from direct production subsidies towards the promotion of 'rural development', but those that benefit most from the unreformed CAP, principally France, have repeatedly slowed progress.

The Agenda 2000 reform programme minimised the impact of CAP subsidies by reformulating the EU contributions, but with the scheme still largely in force and EU enlargement in 2004, the problem is becoming more acute. Changing the text of the decision requires unanimous agreement among member-states and demands subsequent ratification by the Parliament of each member state before passing into force. This has proved to be a particularly divisive issue, often causing major conflicts between member states.

The British rebate continues to be a source of controversy. Many of the other net contributor states regard it as unfair, and in 2003, Budget Commissioner Michaele Schreyer suggested that it should be renegotiated in 2007. The Commission has proposed a scheme that would generalise the rebate, paying funds back to any member state that made 'excessive' contributions.

However, the Government has strongly rejected this arrangement, which would effectively end the UK's privileged position.


Statistics

The UK paid 11 billion to the EU budget in 2000

This compares with Germanys contribution of 21 billion, representing 25.5 per cent of the overall budget

Luxembourg, Belgium, Ireland, Portugal, Greece and Spain were net receivers of funds form the EU budget, receiving a collective sum of £16.8 billion in 2000

At £6.7 billion Spain was the largest net receiver in this period

Agricultural subsidies represented €41.5 billion in 2000

Statistics 1 and 2: (European Commission); Statistics 3 to 5: (Source: European Union Budget 2000)


Quotes

"If you reduce Europe to a profit-and-loss zero-sum game, everybody will lose. We want Eastern Europe to work and we are happy with what we contribute at the moment. The rebate remains and will be strongly defended."
Denis MacShane MP, Minister for Europe, 2003

"We are on the eve of the biggest enlargement in the EU's history…This is an odd moment to propose lowering the ceiling on resources."

Romano Prodi, European Commission President, commenting on UK rejection of EU budget proposals, 2004