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29/07/2016

Budget row escalates as UK bill could reach €3.6bn

UK & Europe

Budget row escalates as UK bill could reach €3.6bn

David Cameron (Credit: [World Economic Forum/Moritz Hager]/Shutterstock)

The row over a hefty top-up to the UK’s contribution to the EU budget worsened Monday (27 October) as Prime Minister David Cameron repeated he would not pay, and the EU Budget Commissioner warned there was no possibility of delaying payment without re-opening questions over the UK’s rebate on the European budget.

Failure to pay could result in a fine of up to €250,000 per day, a sum which could double if the bill remained unpaid after a year, EurActiv understands.

The bill is in fact more than the €2.1 billion referred previously. The total due on 1 December is actually €3.591 billion, EU sources explained.

The UK would however receive a one-off rebate of €1.491 billion under a separate amended budget for 2014 currently under negotiation, and expected to be agreed on before the December deadline. That amended budget would reduce the amount owed to €2.1 billion.

Bill arises from statistical changes to gross national income

The EU budget is partly financed on the basis of the national income of member states. The bill arises from adjustments to gross national income figures posted by member states which lead to adjustments in their contributions to EU budget.

The UK’s bill is particularly large because its Office for National Statistics, the UK’s statistical agency, has brought several sectors– including the UK’s strong charitable sector – into line with European norms.

As a result of the recalculation, £74 billion (€94 billion) was added to Britain’s measured gross national income (GNI) in 2013.

In a statement to the UK’s Parliament Cameron repeated earlier complaints that the payment was “not acceptable”, and said he had the support of Greece, Italy, Malta, the Netherlands “and others”.

“We are not paying on 1 December and we are not paying a sum anything like that,” he told MPs in Westminster, London during a statement on last week’s EU summit.

“We will challenge this any way possible. We will crawl through this with exhaustive detail,” he said, adding that “to use British understatement, this has not enhanced the position of the EU in the UK.”

The leader of the British opposition Labour Party, Ed Miliband, said that the Commission’s handling of the surcharge was “cack-handed and unacceptable”, but accused Cameron of negligence for not dealing with the problem earlier.

“He is asleep at the wheel and the British people are paying the price,” Miliband told UK MPs.

Cameron risks opening Pandora’s Box

In Brussels, the EU’s Budget Commissioner Jacek Dominik told journalists he was “surprised by the reaction” in Britain because “up to this moment there was no single signal from the UK administration that they had problems with this figure.”

There was “no possibility” under current EU rules to give Britain more time to pay the bill. A change to the law would need support from a qualified majority from EU governments and this would be “extremely difficult”, Dominik said.

http://www.euractiv.com/video/commission-accuses-cameron-opening-pandoras-box-309531

Dominik said that Cameron would be in line to receive an increased UK budget rebate next year arising from the same UK GNI increases. “So I think that would be extremely difficult to explain to member states, why on Monday you like this data and on Tuesday you don’t like it,” the budget commissioner said, adding: “If you open this act for future negotiations, you open up a Pandora’s box.”

He warned that, if the money was not paid by 1 December, the European Commission would send the UK government a letter asking for reasons for the delay. There would “be a moment (if no response is delivered) that the Commission will start imposing late… fines”.

If Cameron carries through his pledge not to pay the bill, and if it has not been reduces by the amending budget, the UK faces a punitive interest payment of around 2.5% of the total bill rising to 5.5% per annum if it remained unpaid after one year.

That equates to around €250,000 per day if the country refuses to pay, a daily sum which could double if it remained unpaid after a year.

Backdrop of political unrest in UK

€2.1 billion is equal to a fifth of the UK’s annual transfer to Brussels. Other countries, such as Germany, and France – which has struggled to balance its budgets – will get rebates under the plans.

An emergency meeting of EU finance ministers will be held on 7 November to discuss the bill.

The row takes place against a tense background with a high profile by-election that will be scrutinised for evidence of rising Euroscepticism since traditional Conservative voters are likely to move over to the more hard-line Eurosceptic United Kingdom Independence Party (UKIP).

A victory for UKIP will up pressure on Cameron to toughen his stance on the EU in the run-up to next year’s general election in May. The Tory leader has promised a referendum on the UK’s EU membership in 2017, if the Conservatives are elected.

Background

The UK European elections were held 22 May, coinciding with local elections in England and Northern Ireland.

A total of 73 MEPs were elected. The Conservatives, the party currently in governing coalition with the Liberal Democrats, were pushed into third place for the first time in a European Parliament election, the same position as Labour in the previous 2009 European Parliament election. It was also the first time since 1984 that the largest opposition party failed to win the European Parliament election.

The UK Independence Party UKIP won 32.88% of the vote and 24 MEP seats. The Labour Party came second with 27.4% of the vote and 20 MEP seats. The Tories came third with 26.03% of the vote and 19 MEP seats. The Green Party of England and Wales obtained 3 MEP seats, the Scottish National Party obtained 2, The Liberal Democrats and four smaller parties obtained one seat each.

The UK national elections will be held next year in May. David Cameron has promised a referendum on the UK’s EU membership in 2017, if the Conservatives are elected.

Timeline

  • 20 November: By-election caused by Conservative MP's defection to UKIP
  • May 2015: UK general election
  • 2017: Mooted year for UK referendum on EU membership