Does less money for the EU mean more money for us?

20 November 2013


Liberal Democrats on Facebook

Judging a party's record in government isn't easy. Judging the record of one party in coalition government can be like judging Strictly Come Dancing by watching only one dancer from each pair.

The Liberal Democrats were making the best of a difficult hand on Facebook recently claiming the EU's budget had been cut by £30 billion, alongside citing multiple areas in which EU funds were being spent.

A £30 billion budget cut

References to £30 billion EU budget cuts actually refer to a cut in the EU's budget ceiling. While the EU sets annual budgets for spending its money just like the UK, it also sets budget ceilings called "Multiannual Financial Frameworks" for seven-year periods. They set certain limits on what the EU can spend in its annual budgets in those years.

At the moment we're coming to the end of the 2007-2013 framework, so last year negotiations began to set out a new framework for 2014-2020.

The EU's total spending limit for the last seven years has been about €994 billion (£800 billion at the time) (that's money to spend, excluding money that can be committed to in contracts lasting beyond 2020). The EU actually budgets most but not all of this: in 2013 its budget stood at €133 billion (£108 billion).

For the new period, the EU Commission initially proposed setting a total allocation of about €988 billion (£870 billion) to spend. However the UK government took a hard line in the negotiations, stating it wanted the budget cut at best, frozen at worst. It got it's way. The final proposal suggested a cut in the ceiling to around €908 billion (£770 billion) - £30 billion lower than the previous seven-year round, even considering the new inclusion of Croatia to the comparison.

So the EU is likely to have less money to spend over the next seven years than it did previously, and it's fair to say the UK government played its role in making this happen.

But the UK might not be paying any less

Since 1984 the UK has enjoyed a rebate which means its net contributions to the EU's budget are reduced compared to each other member state. There are some exceptions to this, for instance it only applies to spending within the European Union rather than to international aid spent via the EU.

In 2012, the UK was initially liable for £10.1 billion of the EU budget. The rebate reduced that by £3.2 billion. So overall the UK contributed £6.9 billion to the EU budget that year.

The 'problem' is, since 2005 the rebate has only applied to member states that joined prior to 2004, so any money the EU spends on the likes of Poland, Romania, Bulgaria and Croatia aren't kept down by the rebate. In other words, its value has diminished in recent years.

In the spending round to come, this means it's actually possible the UK could be paying more, not less, to the EU in spite of the cut to the budget ceiling. It's difficult to forecast what our payments will actually be.

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