November 12, 2012
(updated: 18th December 2012)
The 22-23 November EU summit was unable to reach a final agreement on the seven-year budget framework for 2014-2020, so negotiations will continue at a summit in early 2013.
The November talks failed despite the President of the European Council Herman van Rompuy tabling and then amending proposals which further cut the European Commission’s proposals (detailed below) and which represented a clear real terms cut in the 2014-2020 budget ceilings compared to those which applied in 2007-2013.
The European Commission’s original proposals for EU budget ceilings for the period 2014-2020 – known as the “Multi-annual financial framework” or MFF
The figures, at 2011 prices
- the total proposed EU budget ceilings – and they are ceilings, in practice less is always spent – for 27 countries for 2014-2020 represents around 1% of EU GDP, or about a quarter of the UK national budget for just one country;
- over the last decade or so, the EU budget has risen much slower than Member States’ national spending and has decreased from 1.2% of GDP to about 1%;
- the EC proposal represents an increase of 1.9% compared to the 2013 ceiling
- comparing the overall ceilings for 2007-13 (negotiated in 2005) with the EC proposal for 2014-2020 (using 2011 prices) shows an overall increase of around 5%.
- However, this is not comparing like with like as since 2005, two new Member States (Bulgaria and Romania) have joined, with another (Croatia) due to join in 2013. What is more since 2005, Member States have asked the EU to do much more than it did before – for example set up an enhanced foreign service (the European External Action Service) and set up new financial supervisory authorities to help prevent future banking crises.
- despite this, the Commission’s proposal represents a significant reduction in EU spending as a proportion of Gross National Income (GNI). The average for 2007-2013 was 1.13% of GNI, for 2014-2020 the Commission proposal is 1.08 % of GNI;
- the current EC proposal is for a substantially reformed budget for growth with many changes the UK – along with the EC – has consistently argued for. The share of agriculture is down and the way it is spent has been radically changed, to encourage sustainable farming and avoid wasting food and land. Funding for research and innovation – which is a proven motor for growth and where the UK is a leading beneficiary – is up by over 40% compared to 2007-2013. There is a strong focus on Connecting Europe – partnerships to upgrade cross-border infrastructure and boost trade and growth. The financial regulations applying to beneficiaries of EU funding have been reformed to improve accountability and place the emphasis on results rather than process.
The UK’s net contribution to the budget
- the most accurate calculation of the UK’s net contribution for 2011 is €7.255 bn/£6bn – if anything this slightly overestimates the real UK contribution – representing approximately 0.87% of UK public spending (£689 bn) in 2011.
- all the bigger richer countries are net contributors, the UK is the sixth highest per capita (see table below) using the system in Annex 2c of the EU Financial report
- this is not money the UK pours into a black hole or donates to others – it is investment that brings back major benefits. Cohesion funding for example, has helped to create major markets for UK companies – Tesco being an excellent example – in the new Member States. UK construction companies have benefitted significantly from procurement contracts for infrastructure projects in new Member States funded by cohesion budgets. And some of the money – for example on development aid – is money the Uk would spend anyway if it was not pooled at EU level
- overall, the UK government estimates that that the single market brings in between £30 bn and £90 bn a year into the UK economy: or between five and fifteen times the UK net contribution
Background on UK Net contribution
The only authoritative source for EU budget figures is the EU Financial Report, which for 2011 was published in September 2012.
1/Annex 2C of the report includes as part of the UK contribution all of the “EU own resources” – such as customs and sugar duties – collected by the UK on behalf of the EU. Some argue that these should not be counted as this is never “UK money” but money always destined for the EU budget.
- Expenditure (Funds paid from EU budget to UK government and other UK organisations: €6.57 billion
- Total revenue (UK gross contribution to EU budget, minus the UK rebate): €13.852
Net contribution for 2011 on this basis = € 7.255 bn
2/ Annex 3 shows what is known as the operational budgetary balance: This is a special methodology which does not calculate expenditure on administration and proportionally spreads the total income from customs duties and sugar levies among MS (just to eliminate the so called “Rotterdam” effect since countries like Holland and Belgium have due to their geographical location for goods entering single market higher customs collections). It is a statistical exercise. The result for UK in 2011 using this basis is a net contribution = € 5.57 bn. And this would be only the ninth highest per capita.
Figures like £19 billion a year bandied about in some quarters are highly misleading – that is the outlying estimate of the gross contribution before the rebate and before funding that comes back to the UK.
The UK government figures for the net contribution published by the Office for National Statistics while accurate as far as they go, do not reflect the full picture as they usually take into account only payments from the EU budget to the UK central and local government sectors. Agriculture payments pass through DEFRA so those are counted as is Cohesion funding that passes through DCLG – but these do not count, for example, payments from the EU research and innovation and digital agenda budgets to UK universities and SMEs, payments into public private partnerships like the EU Innovative Medicines Initiative or Green Cars scheme or payments from the EU education and training budget to schools and students
Tags:EU budget, MFF, Multi-annual financial framework, UK contribution