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The UK rebate (or UK correction) was a financial mechanism that reduced the United Kingdom's contribution to the
EU budget The Budget of the European Union (EU budget) is used to finance EU funding programmes (such as the European Regional Development Fund, the Cohesion Fund, Horizon Europe, or Erasmus+) and other expenditure at the European level. The EU budge ...
in effect since 1985. It was a complex calculation which equated to a reduction of approximately 66% of the UK's net contribution – the amount paid by the UK into the EU budget less receipts from the EU budget. Based on a net contribution of €11.7 (£9.6) billion in 2016, the
UK Treasury His Majesty's Treasury (HM Treasury), occasionally referred to as the Exchequer, or more informally the Treasury, is a department of His Majesty's Government responsible for developing and executing the government's public finance policy and eco ...
estimated the 2017 rebate amounted to €6.6 (£5.6) billion reducing the ultimate UK contribution for the 2017 budget to €10.4 (£8.9) billion. Although the rebate was not set in the EU treaties, it was negotiated as part of the
Multiannual Financial Framework The Multiannual Financial Framework (MFF) of the European Union, also called the financial perspective, is a seven-year framework regulating its annual budget. It is laid down in a unanimously adopted Council Regulation with the consent of the Eu ...
(MFF) every seven years and had to be unanimously agreed.


History

In April 1970 the six founding member states of the then
European Communities The European Communities (EC) were three international organizations that were governed by the same set of institutions. These were the European Coal and Steel Community (ECSC), the European Atomic Energy Community (EAEC or Euratom), and the E ...
(EC) adopted the so-called 'own resources system' as the means of funding the EC budget. Under this system, revenues were to flow automatically to the EC budget rather than through agreement of the national parliaments, as had been the case until then, and calculated based on three elements: * Customs duties collected on imports from the rest of the world * Agricultural resources * VAT base. As the UK's VAT base in comparison with gross national product (GNP) was proportionally higher than in other member states, and the UK was more open than other member states to trade with non-EC countries, this system implied a disproportionate contribution by the UK when it joined the EEC in 1973. Additionally, the fact that around 70 per cent of the EC budget was used to finance the
Common Agricultural Policy The Common Agricultural Policy (CAP) is the agricultural policy of the European Union. It implements a system of agricultural subsidies and other programmes. It was introduced in 1962 and has since then undergone several changes to reduce t ...
(CAP), and that the UK had a small agricultural sector meant that the UK gained few receipts under the EEC's redistributive policies. To address this, at the Fontainebleau European Council in June 1984 Prime Minister Margaret Thatcher successfully negotiated the UK Rebate which was adopted in the May 1985 European Council decision. It was in place until the United Kingdom's withdrawal from the European Union. In 2005, Prime Minister
Tony Blair Sir Anthony Charles Lynton Blair (born 6 May 1953) is a British former politician who served as Prime Minister of the United Kingdom from 1997 to 2007 and Leader of the Labour Party from 1994 to 2007. He previously served as Leader of th ...
agreed to exclude from the calculation most enlargement-related expenditure (with a progressive phasing-in of the change from 2009 onwards), so as to contribute to the financing of the enlargements to the
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been ...
, with the accession of Central and Eastern European states, that the country itself had strongly supported. The objective was to address what was widely perceived as an unfair effect of the rebate, since the original mechanism would have resulted in the UK contributing little to the costs of enlargement. These changes were adopted in the June 2007 European Council decision.


Calculation and mechanics

Calculating the size of the UK's annual rebate was complex. Broadly, the UK got back 66% of the difference between its share of member states' VAT contributions and its share of EU spending in return. The European Commission set out the detailed calculations in a working document. The calculation of the rebate for any one year was budgeted and paid for the following year, and the payments were subject to revision for up to three further years. There was no transfer of money from the European Commission to the UK Treasury involved; the effect of the rebate was to reduce the size of the UK's payments. The effect of the rebate was to increase contributions required from all other member states, to make up the loss from the overall budget. Germany, the Netherlands, Sweden and Austria all had their contribution to make up for the rebate capped to 25% of the figure which would otherwise apply.


Pressure for change

There had been growing pressure in recent years before
Brexit Brexit (; a portmanteau of "British exit") was the withdrawal of the United Kingdom (UK) from the European Union (EU) at 23:00 GMT on 31 January 2020 (00:00 1 February 2020 CET).The UK also left the European Atomic Energy Community (EAEC or ...
from various EU member states for the rebate to be scrapped. This was partly because the recent additional member states of the EU, which are considerably poorer than the fifteen pre-2004 states, are a considerable expense on the CAP and the EU budget in general. The view was put forward by many that this made the UK rebate harder to accommodate within the EU budget, leveraged with the moral argument that all the new entrants were substantially poorer than the UK. The new entrants, however, are likely to be net recipients of EU funds and not net contributors like the UK was, and only Germany makes a larger contribution to these poorer entrants. The rebate distorted UK funding negotiations with the EU. Normally, countries and independent agencies within each country bid to receive central EU funds. The UK government was aware that two-thirds of any EU funding would have in effect been deducted from the rebate and came out of UK government funds. Thus the UK had only a one-third incentive to apply for EU funds. Other countries, whose contributions into the budget are not affected by funds they receive back, have no incentive to moderate their requests for funds. Furthermore, many EU grants are conditional on the recipient finding a proportion of funding from local sources, frequently national or local government. This increased the proportion coming from UK government revenue even further. This had the effect of artificially reducing EU expenditure returning to the UK and worsening the deficit which the rebate was intended to redress. The
British government ga, Rialtas a Shoilse gd, Riaghaltas a Mhòrachd , image = HM Government logo.svg , image_size = 220px , image2 = Royal Coat of Arms of the United Kingdom (HM Government).svg , image_size2 = 180px , caption = Royal Arms , date_es ...
had resisted campaigns to abolish the rebate and the UK had a veto on any decision by the EU to do so. Former Prime Minister
Tony Blair Sir Anthony Charles Lynton Blair (born 6 May 1953) is a British former politician who served as Prime Minister of the United Kingdom from 1997 to 2007 and Leader of the Labour Party from 1994 to 2007. He previously served as Leader of th ...
said that he would veto any attempt to scrap the rebate. He was supported by many in his Cabinet and by the main opposition party, the
Conservatives Conservatism is a cultural, social, and political philosophy that seeks to promote and to preserve traditional institutions, practices, and values. The central tenets of conservatism may vary in relation to the culture and civilization ...
, as well as the majority of the British public. Supporters of the rebate argued that the distortion created by the rebate is minor compared to that created by the Common Agricultural Policy, which is expensive and has implications for
free Free may refer to: Concept * Freedom, having the ability to do something, without having to obey anyone/anything * Freethought, a position that beliefs should be formed only on the basis of logic, reason, and empiricism * Emancipate, to procur ...
and
fair trade Fair trade is an arrangement designed to help producers in developing countries achieve sustainable and equitable trade relationships. The fair trade movement combines the payment of higher prices to exporters with improved social and enviro ...
in the EU. In addition, they point out that without the rebate, the UK would pay much more into the EU than comparably wealthy countries like France, due to structural differences between their economies. , France got more than twice as much CAP funds as the UK (22% of total funds compared to the UK's 9%) which in cash terms is a net benefit that France gets over and above what the UK got from the CAP of €6.37bn. In comparison, the UK budget rebate for 2005 was scheduled to be approx €5.5bn. Agricultural expenditure for new member states is included in the 'other' segment of the graph. This was limited in 2004 to 25% of payment rates applying to existing member states, rising to 30% in 2005 and 100% in 2013. Total CAP expenditure is capped, so in the absence of further changes, payments to all the pre-2004 member countries will fall by 5% over this period. Some commentators claim that to a large extent, France gets twice the CAP payment that was received by the UK because it has twice the amount of farmland, although the extent to which there is a correlation between the two is disputed. The underlying reason why the UK insisted on retaining its rebate is that if it were reduced with no change to the CAP, then in its view the UK would have been subsidising an inefficient French farming sector. However, France itself remains a net payer to the EU budget, contributing €9.05 billion more than it received in 2013. If the rebate was removed without changes to the CAP then the UK would have paid a larger net contribution than France. The UK would have made a net contribution of approximately €10bn compared to the historical contribution of €3.86bn, versus a current French net contribution of €6.46bn. Germany has a GDP approximately 25% higher than either France or the UK, but per capita income is comparable to the other two countries. France technically makes a net contribution to the EU budget about twice what the UK did, Data from different standpoints (absolute, per capita, as proportion of GDP)
Explanation without the data tables:
and was the greatest contributor towards the UK rebate, which means it would have benefited most from its abolition. If France was not required to contribute towards the rebate it would have still contributed more to the
EU budget The Budget of the European Union (EU budget) is used to finance EU funding programmes (such as the European Regional Development Fund, the Cohesion Fund, Horizon Europe, or Erasmus+) and other expenditure at the European level. The EU budge ...
than the UK did. These contrasting positions led to deadlock at the June 2005 EU budget negotiations in
Brussels Brussels (french: Bruxelles or ; nl, Brussel ), officially the Brussels-Capital Region (All text and all but one graphic show the English name as Brussels-Capital Region.) (french: link=no, Région de Bruxelles-Capitale; nl, link=no, Bruss ...
. France and other states demanded the abolition of the UK rebate at this meeting. Britain dismissed this as a diplomatic manoeuvre by France to save face after their rejection of the European Constitution in a referendum two weeks before the meeting. The UK made CAP reform a prerequisite of removal of the rebate, a proposal their opponents rejected. The negotiations thus ended without an agreement being reached. In December 2005 the UK Prime Minister Tony Blair agreed to give up approximately 20% of the rebate for the period 2007–2013, on condition that the funds did not contribute to CAP payments, were matched by contributions from other countries and were only for the new member states. Spending on the CAP remained fixed, as had previously been agreed. Overall, this reduced the proportion of the budget spent on the CAP. It was agreed that the European Commission should conduct a full review of all EU spending.


Post-Brexit European Union

The withdrawal of the UK from the EU had led to renewed discussion of scrapping of the rebates, with former
European Commissioner for Budget and Human Resources The European Commissioner for Budget and Administration is the member of the European Commission who is responsible for negotiating and managing the EU budget. The current commissioner is Johannes Hahn. The portfolio is primarily responsible fo ...
Günther Oettinger Günther Hermann Oettinger (born 15 October 1953) is a German lawyer and politician of the Christian Democratic Union (CDU) who served as European Commissioner for Budget and Human Resources from 2017 to 2019, as European Commissioner for Digi ...
stating that "I want to propose a budget framework that does not only do without the mother of all rebates he U.K.’sbut without all of its children as well". Far from this, the Multiannual Financial Framework for the 2021-2027 period will shift €53.2bn as national rebates to Germany and the frugal Four funded by the Member States according to their GNI.


See also

*
Budget of the European Union The Budget of the European Union (EU budget) is used to finance EU funding programmes (such as the European Regional Development Fund, the Cohesion Fund, Horizon Europe, or Erasmus+) and other expenditure at the European level. The EU budget ...
*
Economy of the European Union The economy of the European Union is the joint economy of the member states of the European Union (EU). It is the third largest economy in the world in nominal terms, after the United States and China, and the third one in purchasing power p ...
*
Economy of the United Kingdom The economy of the United Kingdom is a highly developed social market and market-orientated economy. It is the sixth-largest national economy in the world measured by nominal gross domestic product (GDP), ninth-largest by purchasing power ...
* Sapir Report – a 2003 European Commission sponsored report recommending the transfer of EU expenditure toward wealth creation and cohesion, and away from the CAP.An Agenda for a Growing Europe – Making the EU Economic System Deliver
* Brexit divorce bill


References


External links


BBC On This Day Story

The Economist article on EU Budget reform

BBC News: ''Q&A: UK Rebate''

BBC News: ''EU says UK rebate 'not justified
{{United Kingdom European Union membership referendum, 2016 Budget of the European Union Economy of the European Union Rebate Public policy in the United Kingdom 1984 in the United Kingdom 1984 in international relations Public finance of the United Kingdom