The UK in the EU

As the debate on the UK’s membership of the EU intensifies, more and more people are stepping forward and making the case in favour of EU membership. See what they say

JOIN US!

To see how to become a member of the European Movement, click here

What's the EU to you?

 

EU 4 Real

      

Citizens of Europe

   

Speaker service

Need a speaker for a debate you are organising on Europe? Click here to find out how we can help.

Expert Briefings

To read the latest analysis from the Senior European Experts click here.

A new direction for the European Union?

Britain and EU migrants

News, analysis and commentary about the EU and the UK by Euractiv

The Future Financing of the EU

A new EU financial framework for the period 2007-13 was provisionally agreed at the European Council meeting in December 2005, following lengthy discussion of its most contentious aspects: the overall size of the budget; the amount apportioned to the Common Agricultural Policy (CAP); the amount granted to the ten new Member States for regional funding; and, in particular, the UK rebate. These issues became conflated as the UK Presidency attempted to broker a deal to secure the future financing of the EU. The final version of the financial framework was agreed by the Council of Ministers in May 2006, after negotiations between the Parliament, the Commission and the Council.

For the period 2000-2006 the EU budget is limited to 1.24% of the EU’s Gross National Income (GNI), though in recent years actual expenditure has been considerably less (usually under one per cent of GNI). This overall limit can only be changed by unanimity and after ratification by all Member States. For the next budget period, from 2007-13, six Member States, including the UK, proposed that expenditure should be limited to 1% of GNI, in other words, about the same as current levels (with an assumed growth rate for the whole of the EU of 2.5%, that would still have allowed the budget to grow in real terms, but by only some 6.5%). This compared with the Commission’s original proposal of 1.14% (an increase of some 26%). The final agreement limits expenditure to 1.05% of GNI, substantially closer to the six Member States’ request than to that of the Commission.

It is worth bearing in mind that the EU budget constitutes a very small percentage of total public expenditure by EU governments. In the 25 Member States, public expenditure as a proportion of GNI ranges from 58% in Sweden to 44% in the UK and 34% in Ireland. Moreover, the EU budget in recent years has grown much less than national expenditures (by 8.2% between 1996 and 2002 compared with an average for EU15 of 22.9% and 67.5% for the UK).

The EU has its ‘own resources’ through the receipt of customs duties and levies on imports and a notional share of countries’ VAT receipts. But three-quarters of the budget is financed through direct payments by Member States based on their GNI. While the Commission proposes no change in this arrangement, the idea of giving the EU its own tax was again floated after the December Summit, but opposition to such a move remains steadfast in many Member States, not least within the UK.

The future of the UK rebate was the other contentious issue resolved at the December summit. The Commission, with the support of many Member States, had argued that UK rebate from which the UK has benefited since 1980 should now be replaced (or abolished). The argument was that there are now other Member States which, like the UK, face a disproportionate net contribution; that the UK’s relative prosperity has grown so that, instead of having a GNI below the EU average at the time the rebate was agreed, the UK is now among the richer Member States; that because of the way the system works the UK would gain a disproportionately high benefit in the period up to 2013; and, finally, that it was unreasonable for the new, and much poorer Member States, to pay towards financing the UK rebate. The UK’s counter argument was that, since by far the largest part of the UK’s inequitably large net contribution results from the scale of the EU’s agricultural spending (from which the UK gets substantially less in return in comparison to countries with much larger agricultural sectors, such as France), it was reasonable that, until such time as that imbalance was corrected, the rebate was retained.

Although agriculture’s share of EU expenditure has fallen over the years from about two-thirds 20 years ago to roughly 40 per cent today, it remains the largest single item. To some extent, this is due to reforms of the Common Agriculture Policy (CAP) which have benefited consumers and our trading partners, but for which farmers have been compensated by direct payments. Nevertheless, agriculture’s share of the EU budget is way in excess of its contribution to the EU economy. In addition, the EU now has a substantial policy for the preservation of the environment and some of the benefits go to farmers.

An agreement on CAP reform in December was always unlikely given the existing budgetary framework. As the result of an initiative by President Chirac and Chancellor Schroeder at the European Council in October 2002, an agreement was reached on the future budget for agriculture until 2013. This agreement involved only a small reduction in agricultural spending in real terms but it did make possible EU enlargement.

The December Council 2005 negotiations ultimately proved rancorous, with much pressure, not least from the ten new Member States and the other net contributors, exerted on the UK. Holding the Presidency, the UK had both to chair the meeting and promote agreement but also to defend the UK’s national interest – not an easy task.

However, an agreement was reached under which the UK retains the rebate but with a gradual reduction from the level the rebate would have been had it been left unamended over the period 2007-2013. This will end the anomaly of the UK securing a rebate on expenditure made in the poorer Member States who joined in 2004. The effect of the agreement is that the UK will lose around 20% of the rebate it would have received under the present system over the course of the 2007-2013. In other words, our rebate will still increase but the increase will be smaller than it would otherwise have been.

Without reform, the UK’s net contribution to the EU would have been the second lowest after Cyprus; that would have been absurd and unfair. It is surely right that the UK should pay its fair share of the costs of enlargement – it would be absurd for the UK to receive a rebate on grants made to poorer EU countries to help them catch up with the rest of the EU. It is also worth noting that, for the first time, the French and Italian net contributions will now rise to a level broadly equal to that of the UK. The negotiations to agree the text of the new financing regulations has been delayed by disagreement over aspects of the method for calculating the British rebate. While agreeing the fine print of the new regulations is important, no one is challenging the basic deal reached last December over the rebate and unanimity is required in any case.

No agreement was reached on further CAP reform but the Council agreed to invite the Commission to undertake a “full, wide ranging review covering all aspects of EU spending, including the CAP, and of resources, including the UK rebate, to report in 2008/9.” The existing CAP reform programme, sector by sector, will continue. The UK’s aim will be to use the new review as a means to reduce the proportion of the budget spent on agriculture and, now that subsidies are de-coupled from production, possibly to have more of the cost of financing the CAP fall on national exchequers.

The budgetary arrangements now agreed for the period up to 2013 will help to boost economic growth in the ten new Member States through the provision of structural and cohesion funding. Over the years these funds have benefited several of the poorer parts of the EU, such as Ireland, Portugal, and Spain, upon accession, as well as countries like Scotland, Wales and Northern Ireland and parts of England. In this way they have helped raise EU growth as a whole. It would have been unreasonable for HMG to insist that these countries pay the UK a rebate on these cohesion funds.

Similarly, the Council agreed that initiatives taken at the European level to contribute to the goals of the economic reform strategy agreed at Lisbon in 2000 should also be adequately funded. These are grouped under the following five broad objectives: research and technological development, connecting Europe through EU networks, education and training, promoting competitiveness in a fully?integrated single market, and the social policy agenda. The largest increases in the final budget are in the areas of improving competitiveness, including transport, research and innovation.

Key points:

- the agreement has given the EU a budget framework to take it up to 2013;

- the UK rebate has been retained, albeit with justified modifications;

- the UK rebate will continue to increase but the increase will be smaller than it would otherwise have been;

- discussions about further fundamental CAP reform have been brought forward;

- the agreement increased sevenfold the commitment to cohesion and structural funds for the new Member States;

- the agreement raised EU expenditure on research and development by 75%;

- and it showed that even where national interests collide, the EU can reach agreement.

July 2006

Valid XHTMLEuropean Movement, Southbank House, Black Prince Road, London SE1 7SJ
Tel 020 3176 0543 | Contact Us | Search
Design: techPolitics | Powered by: Typo3
Unless otherwise stated © European Movement 2009. Use of this site is subject to our conditions of use.
Registered office 7 Graphite Square, Vauxhall Walk, London SE11 SEE | Registered in England number 551817