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08/12/2016

UK claims victory over €2.1 billion budget bill

UK & Europe

UK claims victory over €2.1 billion budget bill

Mateusz Szczurek, George Osborne, and Lord Hill. [EU Council]

Britain will pay only half its surprise budget bill to Brussels, the country’s finance minister claimed on Friday (7 November), adding it had won a better deal for London which will also see Britain receive its EU budget rebate in advance.

The row over a €2.1 billion EU budget contribution has become a highly contentious issue in Britain in the run-up to a general election in May, putting David Cameron under pressure from Eurosceptics at home and costing British support for the country’s membership of the European Union.

“We have halved the bill, we have delayed the bill, we will pay no interest on the bill,” Britain’s Chancellor George Osborne told reporters following a meeting with EU peers in Brussels. “The bill, instead of £1.7 billion pounds will be around £850 million,” he said.

Under a deal agreed with EU ministers and the European Commission, Osborne said Britain would make two interest-free payments next year, in July and September, and would be paid its 2016 EU budget rebate upfront. Taking into account the rebate, the UK will pay the full amount. 

Because of a historic statistical review of national accounts, Britain was due to make the €2.1 billion payment into the EU budget by 1 December or face punitive interest payments.

Ireland’s finance minister Michael Noonan insisted that the UK would be paying the full balance of the bill. Germany’s finance minister Wolfgang Schäuble also questioned the “halving” of the top-up, suggesting there had been a misunderstanding.

Sources, including those at British government, later confirmed that the final amount of the bill was not discussed by EU finance ministers. Osborne told fellow ministers they would use the new payment schedule to review the charge.

Three decades ago, Britain’s then prime minister, Margaret Thatcher, won a rebate on the budget contributions that means the country gets back two thirds of its net contribution to the EU budget of the previous year.

In 2014, the rebate is worth €5.4 billion. Britain is in line for an increase of more than €500 million in its rebate next year, using the same data on the British economy behind the request for an extra British payment.

Waning EU support

France said the deal would allow Britain to pay until September 2015, in a bid to allow Cameron to save face by leaving the issue until after the election if he chose to.

Britain has found sympathy from France, Italy and Germany because of the statistical review stretching back over a decade.

However, Osborne’s counterparts and EU officials had said that it was not possible to let Britain, Europe’s third largest economy, contribute less, despite Cameron’s promise to the British parliament that will not pay “anything like” the full amount.

“The rules for calculating that are not only quite precise, they are also just,” Polish Finance Mateusz Szczurek told Reuters. “The budget contributions are based on gross national income and I don’t really believe that they should be changed.”

Cameron has promised a referendum on Britain’s EU membership in 2017 if his Conservative party wins the May election and the budget issue appears to have made a vote to leave more likely, at least for now.

The latest YouGov poll on the referendum issue showed 41% of Britons would vote to leave the European Union, compared to 38% who would vote to stay. That compared to a slight majority in favour of staying in before the budget issue emerged to dominate the political debate in Britain.

The dispute is part of the EU’s long-term, €960 billion euro budget for the 2014-2020 period, an amount that represents a nominal decrease of around 3% on the last budget. Money goes to areas from farming to foreign policy and Britain and its EU partners agreed to it in February last year.

EU countries review the budget on an annual basis and Britain’s surprise bill is part of London’s 2014 contribution, which does not change the overall size of the budget but means some countries pay less because Britain pays in more.

That reflects a review of national statistics across Europe and in particular a larger than previously estimated rise since 2002 in the contribution of non-profit organisations – including clubs, churches and universities – to the British economy.

But officials in Brussels are at pains to stress that the review does not mean Britain will always pay more.

Changing the rules could threaten London’s EU budget rebate, a contentious issue as Britain has become wealthier relative to its EU peers since it was agreed in 1984.

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