The Rebate - in euros

Whilst we try to understand what is actually going on in the 'Council' in Brussels and the consequences for the UK it is worthwhile revisiting the rebate issue - this time for the benift of our 'European' readers in euros.

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Prime Minister Tony Blair has stood firm in his defence of the UK rebate, the discount the UK receives on its contribution to the European Union budget.

France is leading European calls for the UK rebate to be abolished, as the European Union's budget negotiations begin.

Mr Blair has rejected calls for Britain to make a "gesture of solidarity" with other EU nations by renegotiating the rebate.

"First of all, Britain has been making a gesture, because over the past 10 years, even with the British rebate, we have been making a contribution to Europe two-and-a-half times that of France," he said. "Without the rebate it would have been 15 times as much as France."

All EU countries contribute to the EU budget, and in return benefit from EU spending in their countries.

Because the bulk of the EU budget is spent on supporting farmers' incomes, countries with a large agricultural sector (like Spain, Portugal and Greece) generally get more back than they put in.

Large countries like Britain and Germany are net contributors to the EU budget, while Italy and France are broadly neutral.

However, in 1984 Britain negotiated a reduction of two-thirds in its net contribution, to be paid by other EU members, on the grounds that as a relatively poor member state it paid too much and received relatively little in return.

Now the other EU members, including the 10 new members mainly drawn from former communist states in Eastern Europe, want to abolish or reduce that rebate, on the grounds that Britain is no longer one of the poorer member states, and support for agriculture is a diminishing part of the EU budget.

Britain's central argument is that if it did not receive the rebate, its contribution would be unfairly high.

The relative contributions of member states to the EU vary considerably from year to year.

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In 2003, the latest year in which official figures are available, France paid 15.15bn euros into the EU coffers, but received 13.43bn euros in return, making a net payment of about 1.7bn euros.

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This 1.7bn euros figure includes a 1.6bn contribution to the UK rebate.

Britain paid 9.97bn euros into the EU budget but received 6.22bn euros in return, so it made a net contribution of about 3.8bn euros. This figure would have been much bigger, but for the 5.2bn euros the UK received as a rebate, one third of which came from France.

So- hypothetically speaking - if the UK did not get a rebate, then France's contribution to the EU would be just 100m euros while the UK's contribution would be 9bn euros.

France's contribution to the UK rebate is large because Germany, Austria, the Netherlands and Sweden have negotiated a 75% reduction in their share of rebate contributions. So Italy and France together pay more than half of the cost of the UK rebate.

The UK government prefers to calculate the net cost of EU membership over a longer period.

The Treasury says that over the nine years between 1995 and 2003, the French net contribution to the EU totalled 13bn euros, while the UK paid net contributions of 35bn euros.

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The Treasury argues that if the UK had not received a rebate, it would have paid a total of 67bn euros, while if France had not paid a rebate contribution of 8.5bn euros, then it would have paid in just 4.5bn euros - 15 times less, as Mr Blair has claimed.

As striking as these figures appear, some experts argue that it is misleading to analyse the rebate in this way.

Professor Iain Begg, an expert in European finance at the London School of Economics, says that this hypothetical comparison of payments without the rebate is not very meaningful.
He says that the best way to calculate the cost of EU membership is to look at contributions as a proportion of a country's economy.

On this basis, the France made a net contribution of 0.12% of GDP in 2003, and the UK 0.16% of GDP, a difference of about 33%.

Britain clearly benefits less than many other countries from an EU budget which is still focused on agricultural support.

However, a direct comparison of payments, subtracting out rebate payments, between just two countries, can exaggerate the differences in contributions.