A bigger bill from Brussels

1st December 2007
By Brian Ardy

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In December 2005, Tony Blair and 24 other EU heads of state/government agreed the EU Financial Framework for 2007-13 at the European Council in Brussels. This agreement, reached after long and at times bitter argument, allocated EU spending among policies and agreed some changes to the EU’s Own Resources. It is these Own Resource changes that are contained in the European Communities (Finance) Bill.

The Own Resources which finance the EU budget come from four sources: customs duties on imports to the EU, sugar levies, a 0.3 per cent share of VAT revenue, and a direct contribution calculated as a percentage of a country’s gross national income. The total of these resources cannot exceed 1.24 per cent of the EU’s gross national income and each country’s gross national income per cent contribution is calculated by estimating the required revenue, subtracting the revenue from the other three resources and expressing the resulting figure as a percentage of EU gross national income.

Ad hoc adjustments have been introduced to make the EU’s budgetary system fairer, the most significant of which is the UK rebate. This is roughly equal to 60 per cent of the UK’s net contribution to the EU budget — the difference between its share of EU-allocated expenditure and its share of Own Resources. The major change introduced by the European Communities (Finance) Bill is to reduce the rebate by using an allocated expenditure figure which excludes expenditure in countries that joined the EU after 2004, i.e. enlargement expenditure (except for agricultural guarantee expenditure). This will be phased in between 2009 and 2011; the additional contribution of the UK is limited to €10.5bn up to 2013, but it was agreed that it would be adjusted upwards for enlargement beyond 25 member states. The January 2007 EU enlargement to 27 members will add around €1.3bn to this figure.

Although the UK’s agreement was needed for any change in the rebate, it was very difficult to argue for the retention of the rebate in its original form because this would have meant that the UK, one of the richer EU member states, would have paid only a small share of the costs of enlargement, a policy it strongly supported. With all 24 other member states opposing the rebate, and with the new member states contributing to it, some concession by the UK was necessary. Restricting the concession to some of the additional costs of enlargement seems reasonable, but it will be expensive. By 2013 this will mean giving up around 60 per cent of the rebate at a cost of £2bn; something like £30 for each UK citizen. The other downside is that these additional costs are only capped up to 2013 the optimistic prediction is that new budgetary arrangements will then be in place, but past experience suggests that there will be little change, with the UK picking up a still larger bill.

Brian Ardy is reader in Economics at London South Bank University and the EU budget is one of his major research interests.

Filed Under: EU, Europe, Queen's Speech, European Communities (Finance) Bill
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