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Debating the UK’s EU Rebate

Civitas, 8 September 2010

The European Union’s summer recess is officially over, writes Natalie Hamill. EU officials are back in Brussels and preparing to do battle over the 2011 draft EU budget. These negotiations are always fraught with disagreements as Member States squabble over contributions and allocations, but this year’s budget talks promise to be even more explosive after the EU budget commissioner called for an end to the UK’s rebate.

On Monday (6th Sept) the budget commissioner, Janusz Lewandowski, ‘threw down the gauntlet’ in an interview with the German paper Handelsblatt, when he claimed: ‘The British rebate has lost its original justification.’ With EU budget contributions set to rise yet again, Lewandowski’s proposition has been met with rancour in the UK. By Tuesday the UK Chancellor, George Osbourne, had sharply retorted (using the commissioner’s phrasing): ‘The rebate is fully justified. Without it, the UK would be paying a net contribution twice as much as France.’

The UK secured its EU budget rebate in 1984. Until this point, monies being poured into EU coffers were largely siphoned off to fund the Common Agricultural Policy (CAP) from which the UK hardly benefited at all (UK farmers received only 9% compared with French farmers who received about 25%). Realising that the UK was vastly out of pocket, Prime Minister Margaret Thatcher demanded ‘our money’ back.  The result was a refund (rebate) for the UK, equal to two thirds of the UK’s net contribution, or more simply- the UK gets back 2/3 of the difference between what it puts in to the EU, and what it gets back. The British rebate was worth £5 billion last year and is forecast to be worth £3.25 billion this year.

Commissioner Lewandowski argued that the UK’s refund is ‘no longer justified’ because conditions in 2010 are very different to the situation in the 1980s. First, he argued, GDP per capita in the UK is much higher – once one of the poorer EU members, the UK is now one of the wealthier. Secondly, farm subsidy payments have reduced from 70% to around 40% of the budget.

Even with its current rebate, the UK still contributes more to the EU than it gets back in funding. For 1978-2008, the UKs net contribution was 59.6 billion, making it the second biggest net contributor, after Germany. Over the next few years the UK’s budget contributions are expected to almost treble. As a spokesman for the Treasury stated: ‘Without the rebate, the UK’s net contribution as a percentage of national income would be twice as big as France’s, and one-and-a-half times bigger than Germany’s. This is because of expenditure distortions from policies such as the Common Agricultural Policy (CAP), which still accounts for more than 40 per cent of the EU budget.’

The UK still receives far less from the CAP than many other Member States. The farming policy, now snugly hidden under the title of Preservation and Management of the Natural Resources in the draft 2011 budget, is a large slice of the total budget at €59.6 billion.  In 2008 the UK received €3.8 billion in farm subsidies, versus countries like France and Spain which received €10 billion and €7 billion respectively.

What Commissioner Lewandowski also seems to have forgotten (although the British certainly haven’t!) is that the UK has already given up part of its rebate. In 2005 the rebate was reduced under Prime Minister Tony Blair by the equivalent of £800 million a year, and, despite his promise to secure a reduction in agricultural spending, he only received a guarantee from the EU that CAP reform would be considered in the 2014-2020 budget negotiations.  This concession will cost UK taxpayers £9.3 billion, for 2007-2013.

During the current recession the UK Government, like many other national governments, has been forced to make enormous spending cuts across the board; and yet its contribution to the EU budget is one of the few (if not the only) areas of spending that will continue to rise over the next few years.

The  route out of recession will be long and arduous, and during this time, a major test for the Coalition Government will be to see whether it can stand up to the EU and other Member States’ governments (France will cry for the removal of the UK rebate until it is blue in the face). So far, UK Chancellor George Osbourne has strongly opposed the proposal to end the UK’s rebate: ‘we are not going to give way on the abatement [rebate], and people had better know that at the beginning of the process, because they’ll certainly discover it at the end’. He must be strongly encouraged to keep his word.

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