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UK Rebate Squawks - Again

by afew Mon Sep 7th, 2009 at 03:40:10 AM EST

The Telegraph, followed by a predictable swath of the British press, has been making noises about the UK contribution to the EU budget again:

UK's payments to EU jump by 60 per cent - Telegraph

Britain's payments to the European Union will soar by almost 60 per cent next year, according to figures "buried" in government documents.

The Treasury statistics show that the UK's net contribution to the EU will increase from £4.1 billion this year to £6.4 billion in 2010/11.

The figures were published in the Treasury's annual Community Finances statement, which was slipped out last month just before parliament broke up for its summer recess.

...

Britain's budget rebate - won by Margaret Thatcher in 1984 - is to shrink from £5.1 billion this year to £3.3 billion in 2010/11.

This was from Political Editor Patrick Hennessy, the theme was picked up in his blog by S-E England Tory MEP Daniel Hannan, and Bruno Waterfield wrote this:

EU breaks British budget pledge - Telegraph

European Union officials are preparing to ditch a promise to Britain of a complete review of all EU spending, despite sharp rises in UK payments to Brussels over the next four years.

The overhaul was promised to soften the blow of a deal to cut Britain's budget rebate, originally won by Margaret Thatcher in 1984 but partly surrendered during a negotiation by Tony Blair in December 2005.

There was an angry reaction when The Sunday Telegraph revealed last weekend that as a result, Britain's net contribution to the EU is to rise from £4.1 billion this year to an estimated £6.9 billion in 2011 - the equivalent of £257 for each household.

The much-reviled contribution rose by half a billion between Hennessy's article and Waterfield's, but let's not cavil, Bruno's no doubt a generous guy. The typo (if it is one) illustrates, though, that figures on the EU budget shift, normally because they are constantly adapted to circumstances - over or under-spending, accounting dates versus actual transfer dates, differences between commitments and final payments, exchange rates for non-Eurozone countries, etc. The exact final size of the UK rebate, for example, is only fixed four years after the accounting year in question (and don't let's forget, as I'm sure you were about to, that the financial year in the UK is 6 April to 5 April, not 1 Jan to 31 Dec as in EU accounts).

Surely there are rule-of-thumb approximations that will serve? Very roughly, yes - though, when they were drawing up the current EU Financial Perspective (a seven-year budgetary period of which the overall lines are negotiated in advance - this is the December 2005 negotiation mentioned above, in respect of the 2007-13 FP), who was predicting the financial and economic crisis and the fall of the pound against the euro, for example? (Anyone serious?)


A glance back

to the UK rebate psychodrama during the UK Presidency of the Council in the second half of 2005:

given the projected path of the British economy, the rebate looked set to rise between 2007 and 2013. What was negotiated was not its disappearance but a reduction of the rebate that was capped (the reduction, not the rebate) at €10.5bn over the seven years, or €1.5bn a year (2004 prices). Repeat: the rising UK rebate would be shaved by no more than €10.5bn between 2007 and 2013.

BBC NEWS | Europe | UK rebate

The size of the rebate is rising, as net contributors pay more to cover the increased cost of the enlarged EU. The UK is a one of those net contributors but because the rebate is calculated as a percentage of payments, when the payments increase the rebate also increases.

However, the UK's agreement in December 2005 to give up a total of 10.5bn euros of the rebate between 2007 and 2013 means that it will not rise by as much as it otherwise would have done. By 2007, the rebate was still worth around 5.2bn euros and in 2009 it had risen to 6.3bn euros.

Next, the overall shaping

of the budget's development over the seven years saw considerable restraint (projected reduction of the budget's percentage of EU27 GNI), with an increase in money allocated to Growth and Development while the CAP (in particular Pillar One, agricultural market intervention and direct aid) was slated to trend downwards till, in 2013, CAP Pillar One would stand at 34% of the budget, with Growth and Employment at 45%. Those are plans, but, at the moment, the CAP is trending downwards - not fast enough for the Brits, perhaps, but it's all the same a fact.

Lastly, the "pledge" or "promise", that we are told the EU is breaking, was no more than a recommendation from Council to the Commission. At the time, the UK Presidency wrote a proposal that was adopted by Council, containing this:

79. Europeans are living through an era of accelerating change and upheaval. The increasing pace of globalisation and rapid technological change continues to offer new opportunities and present new challenges. Against this background, the European Council agrees that the EU should carry out a comprehensive reassessment of the financial framework, covering both revenue and expenditure, to sustain modernisation and to enhance it, on an ongoing basis.

80. The European Council therefore invites the Commission to undertake a full, wide ranging review covering all aspects of EU spending, including the CAP, and of resources, including the UK rebate, to report in 2008/9. On the basis of such a review, the European Council can take decisions on all the subjects covered by the review. The review will also be taken into account in the preparatory work on the following Financial Perspective.

Some pledge... It may be legitimate for the Tories to criticize Blair over this, on the grounds that he should have insisted on a more particular and binding undertaking with regard to a review, but to make out that the EU is reneging on a hard-and-fast promise hardly seems justified.

What the EU's revenue consists of

The EU's revenue is made up of three parts, called traditional own resources (TOR) (there are two), 3rd resource, and 4th resource.

  • The oldest, the original budget resources of the EU and therefore known as "traditional", TOR consist of agricultural and sugar levies, and customs duties. The EU is a single market and sets these levies and duties, the member states collect them. They pass on 75% to the EU, retaining 25% for administrative costs.
  • The 3rd resource is a percentage of VAT collected within each member state.
  • The 4th resource is calculated on the basis of Gross National Income (GNI).

TOR and the 3rd (VAT) resources together bring into the EU's coffers about one third of the budget, with the 4th (GNI) resource bringing in the remaining two-thirds. Ceilings are placed on the different chapters of the budget; TOR and VAT are entirely paid in, while the GNI resource adapts to make up the difference without going beyond the ceiling.

The total budget hovers just above 1% of EU27 GNI - currently about €13tn.

Net contribution? Rebate?

Member states contribute funds to the EU budget, and also receive funds. Some, particularly the newer and poorer states, receive more than they contribute. Older and wealthier states contribute more than they receive. The difference between what they contribute and what they receive is their net contribution.

In the case of the UK rebate (or abatement, or correction), the year's contribution is reduced by about 66% of the calculated shortfall in resources allocated to the UK the previous year, in comparison with the UK's share in total VAT base (this is a kind of bureaucratic proxy for the net contribution). To make matters clearer, the calculation has, with the 2005 deal, now become way more complicated. (Details in this pdf).

The rebate complicates finances in another way: other member states have to pay for it. Recently (2007) Germany, the Netherlands, Austria, and Sweden, countries with high net contributions (particularly when calculated per capita, in the cases of the Netherlands and Sweden, for instance) have obtained a reduction of their payments, a kind of rebate on the UK rebate. France and Italy have become far and away the largest contributors to the UK "correction". A system increasingly given to special cases and obscure reckonings is complicated to run and fosters contention.

But are the UK whiners right?

That the rebate will start to go down from next year, certainly. But there are so many differences in presentation of the numbers that it is hard to be precise about this. Take the UK Treasury document referred to by Patrick Hennessy, for example, European Community Finances 2009, compared with the EU's Financial Report 2007 (the latest available). The document (interesting for its explanations and glossary) does give the projected figures cited in the Torygraph along with those for past years (p.25), but they are in pounds and based on the UK financial year, so do not compare with past EU numbers.

In the annexes to the report, (p.62), there is a table that presents the data based on the calendar year and both in euros and pounds.

The amounts cited for the "abatement" (rebate) correspond roughly to those in the EU tables for 2003-2007. That isn't surprising (too much) given that the rebate is a calculated reduction, not an actual movement of money. However, the total "receipts" (meaning all funds received from the EU) don't tally with the EU numbers at all - the UK figures are systematically lower than the EU's each year, by hundreds of millions and even over a billion euros (2006, 2007). One clue as to why this should be is given in a footnote:

1. For all years, the amounts for the UK's gross contribution in this table reflect payments made during the calendar year, not payments to particular EC Budgets.

The Commission accounts, on the other hand, follow budgetary lines and include scheduled or authorized payments that may not yet have yet produced an actual exchange of cash. But one would expect this kind of difference to work itself out from one year to the next. What's more, the footnote speaks of contributions, not receipts. There must be something else.

The Treasury document does go into an explanation of a divergence on the 2007 figures (now practically finalised).

The column in euros does indeed represent the figures in the EU table. The interesting point is that funds received from the EU by the private sector are not accounted for in the official "net contribution" figure. The difference is over a billion euros at the rate cited. After this, there are several minor technical adjustments to bring the numbers into line - but the main point is the absence of private sector "receipts", the effect of which is the overstatement of the "net contribution".

A rather different point may be illustrated by the first of these two tables, and that is the distribution of contributions across TOR, 3rd, and 4th resources. The sum of the two resources in TOR, agri/sugar levies plus customs duties, (mostly customs duties for the UK), is often close to equalling the VAT (3rd) resource, and is even projected to go beyond it in 2009 (presumably as domestic consumption takes a greater hit from the recession than the UK's trading activities do, even though they diminish). The UK is the second biggest TOR collector in the EU, after Germany and before the Netherlands and Belgium. Yet it may be argued that TOR are a totally EU source of revenue, since they result from the single market. The goods are taxed in respect of the single market and not national markets. They are free to move on and be sold anywhere in the EU. The final payer is somewhere in the single market. The member states simply collect the resources, retaining 25% to cover costs. In what sense then is this part of a "national contribution"? A percentage of a country's VAT base or its GNI are much more clearly so.

The fact that TOR are included in national contribution figures, in other words, may be said to allow the UK to pad out its gross contribution to the EU budget, compared to countries that have fewer major points of entry into the single market.

A final point, for the presentation to a British public of numbers in pounds, is that the pound buys less euro than it did.

This is the same table as the one above, but in millions of pounds. The stated national contribution for 2005, 2006, and 2007, was €13bn p.a. (first table). That came out at £8.9bn. The projected contribution for 2009, however, (€8.2bn/£7.8bn), is not far short of parity.

Weak pound adds more than £3bn to Britain's EU bill - UK Politics, UK - The Independent

The pound's collapse against the euro has left Britain facing a multibillion-pound bill on top of the many billions already paid to the European Union.

Sterling's plunge close to parity with the euro has added more than £3bn to the amount the Government must pay to Brussels over the next three years. The figure has been inflated because the Government has to pay it in euros.

(multibillion-pound bill? the many billions? No, not Murdoch or the Torygraph - it's the Independent. The narrative has gangrened every part of the British press).

The exchange rate is set for each year by the rate on the last day of the previous year. The rates for 2005,6, 7, given in a footnote, are around GBP 1 = EUR 1.46. For 2008, the rate slipped to 1.26. For 2009, it's 1.05. The effect is that a lower contribution (thanks to the recession) costs more and (mediawise) doesn't look much lower when stated in pounds.

There's no evidence here that the UK government is deliberately tweaking the numbers to make their contribution look bigger. For all I know, it may be standard practice not to include private-sector EU payments in "national" figures, though I haven't been able to establish if other governments do it. Everyone, on the other hand, counts TOR in their national contributions, so the UK can hardly be blamed for it. And the pound - well, they'd have been better off in the euro, of course...

There's, on the contrary, a possibility that they're working them downwards to avoid political fallout. They're certainly accused of it by the Europhobes.

Either way, however, it's a pettifogging game of counting payments and "receipts" that keeps the UK steering by a restricted national view without taking into account the broader benefits of EU membership, without seeing the larger picture. Wikipedia cites one of the "unintended effects":

UK rebate - Wikipedia, the free encyclopedia

The rebate distorts UK funding negotiations with the EU. Normally, countries and independent agencies within each country bid to receive central EU funds. The UK government is aware that 2/3 of any EU funding will in effect be deducted from the rebate and come out of UK government funds. Thus the UK has only a 1/3 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.

Blogspeak translation: the UK is crawling up its own arse.

So what about the whiners

we started off with? The big lie in their presentation is the bombshell effect, the big surprise: by grubbing about in "buried" government data, we have uncovered the hidden truth that no one suspected!

It was known all along that the reduction of the rebate negotiated by Blair in 2005 would apply heavily to the later years of the seven-year Financial Perspective. Here's the schedule set out in the UK Presidency document adopted by Council:

No change in the rebate in 2007 and 2008, only 20% of the reduction in 2009, a bigger cut (70%) in 2010, and the full reduction for the final three years. Which also means that the €10.5bn maximum reduction is spread over five years, not seven, and for the most part over the last three years (a gift labelled in cauda venenum from Blair to his successors? In any case, if the Tories are in power in those years, no prizes for predicting the god-awful stink they'll put up).

This was perfectly well known to journalists. From the Independent article cited above (4 January 2009):

Weak pound adds more than £3bn to Britain's EU bill - UK Politics, UK - The Independent

The increase comes on top of a trebling of the UK contribution to the EU - from £2bn this year to £6.5bn in 2010-11 - details of which were tucked away at the end of Alistair Darling's Pre-Budget Report in November.

Oh, so it wasn't just "buried" in the annual EU Budget release from the Treasury, it had already been stated last November in the Pre-Budget Report. And in fact, "tucked away":

So the Telegraph didn't "discover" something that was hidden, it just started on a new leg of an old campaign. According to Daniel Hannan:

Daniel Hannan - Telegraph Blogs

I'm delighted that Philip Hammond, the Shadow Chief Secretary, is turning his formidable mind to the matter of how quite how much British taxpayers are handing over to Brussels (hat-tip, Open Europe).

Hmm, Open Europe, a think tank we've already seen. A stirring lesson in what Open Europe has to say on this question (and, for those who don't know, what the narrative on the EU is in the British gutter press) can be found in an Express article a week after Hennessy's in the Telegraph.

Open Europe is present also on Wikipedia, with numbers on future state-by-state payments to the EU budget. The reference leads to a 2007 "briefing" on UK contributions that notably contains this:

The lower part, past figures from 200-2004, are indeed taken from the UK Treasury Pink Book. The upper part is interesting. Note that it's in pounds, not euros. It doesn't appear to use UK financial years, but to work with calendar years in the EU Financial Perspective. It sets out high gross contributions and declining "receipts" (which they can't spell), and (it follows) high net contributions.

UK Treasury numbers for total contributions (in pounds): 2007: 12.5bn.

EU figure for 2007 (fixed): €18.6bn or £12.7bn (TOR included; 2007 exchange rate = 1.4615).

Open Europe looks high with a 14bn+ figure projected all through the Financial Perspective. The downward trend of receipts doesn't correspond to the Treasury forecasts either (stable at around £5bn).

Where do Open Europe's figures come from? "Written Answer, 9 Jan 2006", they append (with no link, as for the Treasury Pink Book - go and find it yourselves).

OK. A Written Answer is to a Parliamentary Question to a minister, and it will be in the UK parliamentary record, Hansard. And there is a written answer on 9 Jan 2006, to a question on the EU budget from the then Shadow Economic Secretary to the Treasury, Mark François, answer signed by then Economic Secretary to the Treasury Ivan Lewis:

House of Commons Hansard Written Answers for 9 Jan 2006 (pt 76)

EU Budget

Mr. Francois: To ask the Chancellor of the Exchequer if he will itemise the reductions of the UK rebate from the EU which will occur in each of the years of the new financial perspective 2007 to 2013; and if he will make a statement. [40257]

Mr. Ivan Lewis: I refer the hon. Member to Annex 2 of the proposal from the UK Presidency on the Financial Perspective 2007-13 agreed at the European Council on 17 December 2005.

The proposal from the UK Presidency, etc, we have already talked about several times. It has an Annex II, but it contains only data concerning trade with ACP (Africa, Caribbean, and Pacific) countries (applause for Lewis). The only annex that bears any relation to the question (reductions of the UK rebate) is Annex III, and that is the table reproduced above showing the percentages of reduction for each year from 2007 to 2013.

And that's it, folks. Open Europe's source is that table: 0%, 0%, 20%, 70%, 100%, 100%, 100%.

Meaning they made the numbers up? Why not? What evidence have they given of anything else? They show no workings for their tendentious figures, they give no credible source, they pretend to give one that looks "serious" but that no one is likely to check on. Some people would call them liars, some people would. Even cheap propagandist liars. Some people will say anything.

And the budget?

Reform is necessary. Reform of the CAP is necessary: an end to subsidised exports, an end to subsidised agro-industry, a cap on direct aids per farm or per farmer. Reform of the revenue system is necessary: the four resources are too complicated, the rebate systems distort. A simple, clear, EU own resource should replace them. Of course, not everyone agrees. The UK wants CAP reform, but:

House of Commons European Scrutiny Committee

32. The Minister's comments on revenue raising and the UK rebate are unsurprising:

"The Government is firmly against any proposals for an EU tax to finance the Community Budget and believes that taxation is a matter for member states to determine on a national basis. The Government believes that the current UK abatement remains justified and necessary to correct for the UK's disproportionate budgetary imbalance."

What else?

Display:
May I add that reform should also include the Commission's communications on this subject?

Trying to get clear information and data on the budget is frustrating to say the least. Time for a change.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 5th, 2009 at 06:01:22 PM EST
European Tribune - UK Rebate Squawks - Again
The exchange rate is set for each year by the rate on the last day of the previous year. The rates for 2005,6, 7, given in a footnote, are around GBP 1 = EUR 1.46. For 2008, the rate slipped to 1.26. For 2009, it's 1.05. The effect is that a lower contribution (thanks to the recession) costs more and (mediawise) doesn't look much lower when stated in pounds.

so next year's will be a real doozie.

that should give cameron something to chew on

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Sep 6th, 2009 at 02:58:40 AM EST
[ Parent ]
Thanks for putting all this together, it's giving me brain ache trying to follow this well written diary so I wouldn't like to have been wading through all these different sources to work out what was going on.
by In Wales (inwales aaat eurotrib.com) on Sun Sep 6th, 2009 at 05:21:34 AM EST
[ Parent ]
such a topic is inevitably complex - decades of negotiations leading to exceptions to exceptions to exceptions on highly complicated underlying subjects.

Easy to disinform and mislead by cherry picking some numbers.

The fact remains that the net contribution of the UK is increasing because the EU is investing in Central European countries (of whose integration in the EU the UK was the biggest supporter) and the richest countries (of which the Uk is, if I hear their bragging correctly) are supposed to help the poorest ones, and not the other way round (if the rebate had not been reformed, Poland would have been sending money to the UK, net).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Sep 5th, 2009 at 06:46:03 PM EST
the net contribution of the UK is increasing because the EU is investing in Central European countries

To which the UK is contributing with the exception of CAP and regional expenditure, the total contribution being capped at €10.5bn over seven years. Not so huge.

Help poorer countries? Daniel Hannan (Conservative MEP):

Britain's EU budget contributions to rise by 60 per cent - Telegraph Blogs

Oh, and don't give me any nonsense about the EU budget being a way to help poorer nations. If Britain has money to give away, there are plenty of people in the Third World who need it more than the lobbyists, contractors and big landowners who are the major beneficiaries of Brussels spending. Incidentally, do you know which country has been the single largest per capita recipient of EU funds since the Treaty of Rome was signed? Luxembourg.

(Funding for EU institutions in Luxembourg, divided by the very small population to produce the per capita, obviously produces a shock figure. This is the kind of cheap shit shot they come up with.)

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Sep 6th, 2009 at 06:08:47 AM EST
[ Parent ]
all I was pointing out is that there are basic, evident reasons why the UK net contribution should be increasing, and, as you dug up, it should have actually increased quite a bit more than it has.

But yes, of course, it is vet easy to create confusion with multi-year, multi-currency numbers that get adjusted ex-post under complicated rules and can be provided on a gross basis, per capita basis, and compared to the good old pre-Blair / pre-enlargement numbers...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Sep 6th, 2009 at 06:16:50 AM EST
[ Parent ]
"Not so huge" was not an objection to your point, but to the outraged shreiks of the UK Europhobes.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Sep 6th, 2009 at 03:54:27 PM EST
[ Parent ]
Administrative expenditures don't go to the country in which they are located in the same way as other expenditures for rather obvious reasons (EU employees do not pay income taxes, for one).

Still, there is some benefit to Belgium and Luxembourg from the administrative expenditures (more per euro to Belgium as it extracts quite a bit with its high VAT rates) and it would be nice if there were some agreement on accounting for that.

by nanne (zwaerdenmaecker@gmail.com) on Sun Sep 6th, 2009 at 07:05:23 AM EST
[ Parent ]


The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Sun Sep 6th, 2009 at 06:37:04 PM EST
This is a praiseworthy effort but, nevertheless, a colossal exercise in missing the point. The secret is in the sauce i.e. the method of calculation of the UK rebate which has remained fundamentally unchanged since Margaret Thatcher negotiated it in Fontainebleau (year?).

It can be found in the pdf document on the "method" mentioned in the post. It compares the percentage difference between the UK share of nominal VAT receipts across the EU and the UK share of allocated expenditure i.e. that which can be identified as being spent in Member States and applies the difference (i.e. a percentage) to the total of allocated expenditure. The UK gets back two-thirds of this amount.

Got it?

Maybe not! Apart from the civil servants from the major states and Commission, very few do. They are now on their second generation.

But the result is an EU budget craft weighed down with inconsistencies and perverse effects. The most obvious is the fact that the lower the UK level of receipts, the higher the rebate. The other major perverse impact derives from the fact that higher receipts by the new Member States, the lower the UK share and the higher the rebate. (Remember, we are dealing in percentages).This explains the ridiculous situation Blair got himself into via-a-vis the Poles during the 2005 negotiations. Brown, of course, insisted on the 10.5 billion euro cap because it is impossible to predict with accuracy the impact of the mechanism. He also delayed signing off on the deal until he was assured of becoming PM. (Check the timetable!).

Germany, of course, under Schroeder pulled its irons out of the fire and left France, Italy and Spain with the major share of the cost of funding the rebate.

However arcane the topic, it is of enormous significance and all research is worth the effort. The system simply cannot continue. The issues are political, not budgetary. How could the UK expect to be exonerated from the cost of funding it share of the cost of Enlargement?

Ignore the detail! Concentrate on the basic anomaly

by DOCM on Mon Sep 14th, 2009 at 02:29:48 PM EST
The EU has a long and proud history of complicated ad-hoc workarounds to avoid dealing with political standoffs, and can perpetuate them as long as needed.
by nanne (zwaerdenmaecker@gmail.com) on Tue Sep 15th, 2009 at 12:05:37 PM EST
[ Parent ]
Thanks, DOCM, for a clear statement of the method:

DOCM:

It can be found in the pdf document on the "method" mentioned in the post. It compares the percentage difference between the UK share of nominal VAT receipts across the EU and the UK share of allocated expenditure i.e. that which can be identified as being spent in Member States and applies the difference (i.e. a percentage) to the total of allocated expenditure. The UK gets back two-thirds of this amount.

But:

DOCM:

How could the UK expect to be exonerated from the cost of funding it share of the cost of Enlargement?

The pdf document also goes into the further complication of the reduction of the rebate:

As from the 2008 correction, to be budgeted for the first time in 2009, total allocated expenditure, referred to above under (a) second hyphen and (b), shall be reduced by total allocated expenditure in Member States that have acceded to the EU after 30 April 2004, except for agricultural direct payments and market-related expenditure as well as that part of rural development expenditure originating from the EAGGF guarantee section.

The "reduction in the rebate" ensures the UK pays some share at least in the costs of enlargement (minus CAP, and even if it's limited to €10.5bn). And the method applied is not the same as it has been since Fontainebleau in 1984. It is considerably more complicated.

Look, I'm sorry I didn't address "the point" as you see it or as you think it should be. "The point" to me was to straighten some of the UK media and "think tank" bluster, while precisely offering a moderately detailed walk through the elements of the EU's revenue and the UK correction.

I suggest you write a piece that simply says the UK rebate is an anomaly. You won't get many people disagreeing with you.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Sep 16th, 2009 at 10:46:39 AM EST
[ Parent ]
I did say that it was a laudable effort.

But you are still missing the point. The entire system is based on a flawed foundation - the UK rebate mechanism - and, this being the case, it has no logic. The added complications to which you refer are simply a reflection of this.

Because the GNP revenue resource has become such a large element, however, there is a balance of sorts relating the contributions of Member States relative to their GNI (GDP). The repeated negotiations that have taken place have been aimed at achieving a better balance, notably for Germany, the Netherlands and Sweden. In other words, the result to be achieved guides the various additional mechanisms adopted and not the other way round. It also explains the various sweeteners handed out at various times.

It is not in the interest of the UK to draw attention to the rebate mechanism and the other major contributors seem almost too embarrassed to admit that they agreed to it in the first place.

The question posed is a political one.Can a mechanism, agreed in haste when the VAT base for the UK was unusually high, but in circumstances where VAT was seen as likely to be the main source of revenue for the future, continue? The answer, it seems to me, to be no if for no other reason that it has become almost unworkable in an EU of 27.

The UK rebate mechanism - as opposed to the issue of the entitlement of the UK to a rebate - is the bad ingredient in the overall sauce. It is not a one-sentence anomaly.

by DOCM on Thu Sep 17th, 2009 at 08:35:33 AM EST
[ Parent ]
Fine, I agree with you on this. But, again, I wrote this in reaction to disingenuous British media noise about the post-2007 situation. So I didn't set out to say the rebate was wrong in the first place - though I should think it could have been deduced from what I wrote that I thought that.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Sep 17th, 2009 at 08:52:00 AM EST
[ Parent ]
By the way, that's a serious invitation to write a "diary" on that point.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Sep 17th, 2009 at 09:02:57 AM EST
[ Parent ]
I happen to think that a UK rebate is probably justified because the CAP - the main source of the UK budgetary "imbalance" - is a policy of doubtful economic justification. The problem is not the principle but the mechanism.

You may take it that UK media not alone do not understand the mechanism, they do not wish to.

What is at issue is not the sums involved, as such, which are tiny relative to national budgets with the actual net transfers being even smaller, but the political question "who benefits and who pays?".

This is a wide one and worth looking at. An element, by way of example, would be that the UK is a very half-hearted member of the club, disagrees with some of the activities undertaken, does not use some of the facilities, notably the currency used by the club,  and, to cap it all, wishes to be compensated for the cost of this. However, it does supply much of the heavy lifting with regard to the heavies at the door,notably those troublesome Al Qaida people, and this is a consideration other members have to bear in mind?

One could go on in this vein. But the key question remains: how does one come up with an alternative mechanism which seems fair to all concerned.

The Financial Perspectives for the period 2014-2020 is a topic that might appeal more than the European Parliament for which, you will have gathered, I do not have a particularly high regard.

by DOCM on Thu Sep 17th, 2009 at 11:47:48 AM EST
[ Parent ]
However, it does supply much of the heavy lifting with regard to the heavies at the door,notably those troublesome Al Qaida people, and this is a consideration other members have to bear in mind?

Um, what "heavy lifting?" And on what fictional planet is Al Qaeda "heavies at the door?"

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 17th, 2009 at 05:00:33 PM EST
[ Parent ]
It is a fact of life that two Member States of the EU, the UK and France, are the only countries with a  capacity to project major military power.Others, including the four other large Member States, Germany, Italy, Spain and Poland, either do not have the means or the willingness to act.

This is a consideration that Continental countries tend to bear in mind. In other words, the UK's relationship with them is not confined to the economic one.

Indeed, one of the reasons that Blair is a credible candidate for President of the European Council is because of this very fact.

If you lift your gaze a little bit, you will see that most countries of Europe, whether in NATO or not, have some involvement in either Iraq or Afghanistan. They are there because of the threat that I identify. What fictional planet are you on?

by DOCM on Fri Sep 18th, 2009 at 09:34:52 AM EST
[ Parent ]
It is a fact of life that two Member States of the EU, the UK and France, are the only countries with a  capacity to project major military power.

And under which sane foreign policy doctrine does the EU want to "project power?"

most countries of Europe, whether in NATO or not, have some involvement in either Iraq or Afghanistan.

Against the wishes of respectably solid majorities of their populations.

Good little client states of the empire.

They are there because of the threat that I identify.

You have identified no threat. You have claimed that a threat exists, but you have yet to demonstrate it.

Oh, and the politicians, pundits and assorted Serious People who encourage pissing our blood, treasure and political capital away in American colonial wars are the same people who didn't see the crash coming. And who didn't see the dotcom crash coming either. Nor, in case of the older ones, did they see S&L coming. Not precisely my preferred clearinghouse for reality-based policy analysis. But I guess tastes differ...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 18th, 2009 at 12:19:58 PM EST
[ Parent ]
Emotion is one thing, logic is another.

As it happens, I would agree with a lot of your emotion in the matter but not the logic as far as this thread is concerned. What is under discussion in this thread is the question of the UK's contribution to the budget of the EU. My point is simply that other EU countries include in their assessment of the appropriate response more than the figures contained in the actual budget.

Whether you like it or not, the UK and France are the major military powers in Europe, holders of nuclear weapons and permanent members of the UN Security Council.

As to the threat, I said that I had identified it, I did not say that I agreed with it. Indeed, I think the involvement of the West in both Iraq and Afghanistan to be a disaster. The only reason many countries are involved is that they have had their arms twisted to become involved by the US as part of its "out of area" doctrine for NATO. Or, as Bush might have put it, "those that are not with me are against me". There are welcome signs that this approach is changing under Obama, promoted by every bomb that explodes under NATO personnel. Whatever they are, the Taliban are not stupid.

Calm down and read what others write. And stay with the topic under discussion.

by DOCM on Fri Sep 18th, 2009 at 01:55:02 PM EST
[ Parent ]
Emotion is one thing, logic is another.

Yeah, and Reason is the Whore of Desire. In fact all of our mental processes are informed and guided by emotion, most especially judgement.  Ignore your gut at your peril when making an important judgement.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 18th, 2009 at 02:42:28 PM EST
[ Parent ]
Whether you like it or not, the UK and France are the major military powers in Europe,

There are no major military powers in Europe - haven't been since the Suez Crisis. Just minor powers with delusions of grandeur.

holders of nuclear weapons

And we should care about that for what precise reason, again?

and permanent members of the UN Security Council.

Where they will vote in lockstep with Washington on every remotely important issue. Now, if the UK and France were to actually leverage their seats in the UNSC to promote legitimate European interests, I could see a point of compensating them for their efforts. But as far as I can tell that's not the case for the UK at all, and neither is it most of the time for France.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 18th, 2009 at 03:26:29 PM EST
[ Parent ]
We can try, as on so many blogs, to talk about everything and end up talking about nothing.

I will respond to your last point as it seems to me to be the only one relevant to the thread. It is not a question of compensating the UK for anything. The UK went into the EU with its eyes open and the other Member States have responded in kind. The simple contention that I make is that, in confronting the inevitable budgetary funding crisis that is looming for the next financial perspectives, the other Member States will take into account the overall context of their relations with the UK and not just the budgetary one. They have always done so in the past. I do not see why they should not do so in the future.

I have identified the central bone of contention as the nature of the UK budget rebate mechanism.

by DOCM on Fri Sep 18th, 2009 at 04:12:12 PM EST
[ Parent ]
If you considered, above, that

DOCM:

it does supply much of the heavy lifting with regard to the heavies at the door,notably those troublesome Al Qaida people, and this is a consideration other members have to bear in mind

was relevant to the discussion of the UK rebate, then it would seem logical to accept further debate on the matter without suggesting that it is off-topic.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 19th, 2009 at 04:02:03 AM EST
[ Parent ]
I mentioned the subject in the context of the UK's overall relationship with the rest of the EU, full stop. Insofar as it has taken off at a tangent, this is the work of others.

I do not know technically how to lift quotations - especially partial one - out of the contributions of others and I do not intend to find out. It is the most tiresome feature of this blog that I have noted to date.

by DOCM on Sat Sep 19th, 2009 at 05:02:45 AM EST
[ Parent ]
The quotations avoid disputes of the "you said such and such"/ "that wasn't exactly what I said" kind by providing an exact citation and its source: the username above is a clickable link back to the comment, which can then be read in full.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 19th, 2009 at 06:28:27 AM EST
[ Parent ]
And it reduces the requirement for footnotes, by making it simpler to request explanation and expansion of a claim.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Sep 19th, 2009 at 06:39:01 AM EST
[ Parent ]
Which budgetary funding crisis? The short-term, non-structural non-crisis in which the Panic of '08 creates a need for counter-cyclical deficits? Or some structural budget crisis related to extending CAP and regional construction efforts into Eastern Europe and Turkey?

I would also disagree with your contention that it is the mechanism - or even the existence of the rebate itself - that is the bone of contention. The rebate is merely a symptom of a much larger problem of British obstructionism, "special relationship(s)" and delusions of grandeur.

There is a quib in the English-speaking press that Russia cannot join the European Union because it would want to deal with the rest of the Union on an equal footing: One vote to Russia and one vote to the rest. This seems to me to be a case of projection.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Sep 19th, 2009 at 04:51:24 AM EST
[ Parent ]
There are a number of sources of the imbalance. I don't know whether the CAP is the 'main' source. I do know that it is not responsible for more than a third because I once did some calculations on the matter a few years ago.

There are a number of other major contributors:

  • The UK doesn't get much in terms of structural funds
  • The UK doesn't get much in terms of general EU spending for the other policies (which make up less than 20% of the budget at any rate)
  • The UK is a major trading economy, meaning that there are many revenues in it related to tariffs at the external border than in other big countries
  • The UK is (or was) a consumption-driven economy, that is, it has a higher domestic consumption/GNI rate than the other big European countries, also leading to it paying more via the VAT resource
  • Finally, the UK used to have a higher GNI/capita than Germany and France, so it ought to pay a bit more.

This does mean that trading in the rebate for, say, the elimination of the first pillar of CAP funds is a good trade from a monetary perspective for France and Germany, certainly as they are going to get progressively less CAP funding as the current budgetary framework moves along.

(of course, they won't do so because the domestic rural politics dominate their policies on this topic)

by nanne (zwaerdenmaecker@gmail.com) on Sat Sep 19th, 2009 at 05:29:33 AM EST
[ Parent ]
On the first two of your bullet points - that the UK doesn't get much, relatively speaking, structural funds and other spending, see the point made in Wikipedia that I quoted above: the UK has little incentive to bid for EU funds:

The rebate distorts UK funding negotiations with the EU. Normally, countries and independent agencies within each country bid to receive central EU funds. The UK government is aware that 2/3 of any EU funding will in effect be deducted from the rebate and come out of UK government funds. Thus the UK has only a 1/3 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.

This is a perverse effect of the rebate.

On your third point, I wrote wrt the UK:

The sum of the two resources in TOR, agri/sugar levies plus customs duties, (mostly customs duties for the UK), is often close to equalling the VAT (3rd) resource, and is even projected to go beyond it in 2009 (presumably as domestic consumption takes a greater hit from the recession than the UK's trading activities do, even though they diminish). The UK is the second biggest TOR collector in the EU, after Germany and before the Netherlands and Belgium.

Trading economies; big ports. As I suggested, TOR should be considered as EU own resources, as the levies and duties apply to the entire single market, member states simply collecting them on the EU's behalf (and receiving 25% to cover costs).

On the VAT resource, the Treasury document referenced above has an interesting table, (2A p 54), that shows 3rd resource payments by member state for the years 200-8, with projections for 2009. From which it is clear that France is the biggest contributor of this resource, followed by Germany, Italy, and Spain, before the UK.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 19th, 2009 at 06:20:59 AM EST
[ Parent ]
200-8 2003-8
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 19th, 2009 at 06:23:31 AM EST
[ Parent ]
On the VAT contribution, you can see note 3 in the table.
3. The figures for VAT contributions are after taking account of the UK abatement.

The UK treasury doc says that the VAT resource has been fixed at a percentage of GNI, which confuses me to some extent, because the EU budget site says this:
The own resource based on value added tax (VAT) is levied on Member States' VAT bases, which are harmonised for this purpose in accordance with Community rules. The same percentage is levied on the harmonised base of each Member State. However, the VAT base to take into account is capped at 50 % of each Member State's GNI. This rule is intended to avoid that the less prosperous Member States pay out of proportion to their contributive capacity, since consumption and hence VAT tend to account for a higher percentage of a country's national income at relatively lower levels of prosperity.

So I'm not 100% sure of the rules in the current budgetary framework. I remember that in the 2001-2006 framework the UK did have a higher base than France and especially Germany and Italy.

I agree that the 'traditional own resources' should not be seen so much as a contribution to the EU budget for trading states, but there is a minor argument that the UK is an island which traditionally trades a lot with the world outside of the EU and as a result it does not merely trade on goods to other EU countries, like Belgium and the Netherlands. Still, the resulting 'imbalance' should be negligible.

On your first point, I agree and would additionally note that EU funds generally come with a co-funding requirement that would be relatively high in the UK, so the question isn't merely whether they get a bit less of a grant (because getting 1/3rd of a grant is still free money that should outweigh administrative costs), but rather something that can fundamentally change the calculus of whether a project is worth the cost.

by nanne (zwaerdenmaecker@gmail.com) on Sat Sep 19th, 2009 at 07:34:22 AM EST
[ Parent ]
On the first point, you're right, I missed that.

On the second, yes, the VAT resource is capped. It is estimated that the UK gains an advantage from this capping (see the reason given in the EU document you quote), and the first "complication" in the calculation of the UK rebate is to allow for this by subtracting from the initial rebate amount a sum called the "UK advantage".

See this pdf for details.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 19th, 2009 at 08:11:54 AM EST
[ Parent ]
Endlessly fascinating, isn't it? Ideal for whiling away a wet Saturday afternoon.

In the pdf referred to, I would refer you to the table (page 11?) which shows the contributors to the cost of the UK rebate. France 27.37%, Italy 22.47%, Spain 13.99%, Germany 6.22%(?). Schroeder must have been one smart guy with a calculator.

I repeat. There is no logic to the system and looking for it only adds to the illogicalities. Special cases can be made for all Member States. The so-called "Rotterdam effect" in the case of The Netherlands, for instance.

One can look at it from the point of view of the game where one starts building a tower with childrens' blocks but the block marked "UK rebate mechanism" at the base is out of perpendicular. Every additional block is added in one direction or another try and keep the tower stable. But fall it will.

The only rough guiding principle that has emerged is that contributions should be related to wealth. "Each contributes according to capacity and receives according to need". The problem is that there is no agreement on what constitute legitimate needs e.g. the CAP. The results to date have been tailored to (a) trying to meet the GNI criterion and (ii) to the extent that this is not met, making those Member States insisting on an unbalanced view of needs (France for the CAP, Spain and Italy for continued cohesion spending) pick up the tab for the UK rebate.

The issues are political, not budgetary.

by DOCM on Sat Sep 19th, 2009 at 01:27:05 PM EST
[ Parent ]
by DOCM on Sat Sep 19th, 2009 at 01:40:44 PM EST
by DOCM on Sat Sep 19th, 2009 at 01:44:07 PM EST
[ Parent ]
Nope not working

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sat Sep 19th, 2009 at 01:51:59 PM EST
[ Parent ]
were you trying to point at this?

PROCRUSTEAN BED

In which case I really dont see what point you're trying to make.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Sat Sep 19th, 2009 at 01:54:36 PM EST
[ Parent ]
Is the point not rather obvious? Instead of making the bed fit the facts, the debate so far on this thread on the finer points of the EU budgetary system is trying to do the opposite.
by DOCM on Sat Sep 19th, 2009 at 02:19:04 PM EST
[ Parent ]
And the bed is?
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 19th, 2009 at 02:41:50 PM EST
[ Parent ]
The totality of the relations between the Member States, in particular the six largest who account for over 75% of all EU income and expenditure.
by DOCM on Sat Sep 19th, 2009 at 03:32:07 PM EST
[ Parent ]
OK. Well that was not (though I have already explained this) my subject here. This blog allows and encourages users to post their own articles as "diaries" (no, we didn't invent the term, it comes with the software). If you'd like to post a diary on the above subject as you see it, you'd be most welcome. For how-to instructions see the New User Guide.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 19th, 2009 at 03:38:53 PM EST
[ Parent ]
That would take all the fun out of it. Vigorous debate is what clarifies the issues.

By the way, it may have escaped attention that what we are discussing is an accounting exercise i.e. all the political questions have already been decided as far as the present financial perspectives are concerned. It is up to the accountants in the Commission and capitals simply to keep the books straight.

One of the intriguing features for the future is that the Own Resources decision (i.e. that which decides the funds that are levied on Member States) includes the mechanism and provides that this continues until it is replaced, the decision to be taken unanimously.

Kohl and company must have been asleep in Fontainebleau.

However, even UK brass neck is unlikely to stretch to asking other Member States to work out Iceland's (or Croatia's) share of "allocated expenditure".

by DOCM on Sat Sep 19th, 2009 at 04:02:31 PM EST
[ Parent ]
DOCM:
That would take all the fun out of it.

I would have thought you'd appreciate the opportunity to state your position in the form of a unified argument, instead of in dribs and drabs.

But what do I know?

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Sun Sep 20th, 2009 at 04:20:45 AM EST
[ Parent ]
While it may cause some participants to hold their noses, the attached from the excellent series on Europe being run by the Daily Telegraph may be of interest. Debate on the future budgetary system will centre on the idea proposed.

http://www.telegraph.co.uk/news/worldnews/europe/6194800/EU-farms-cash-is-the-root-of-conflict.html

by DOCM on Sun Sep 20th, 2009 at 08:01:38 AM EST
[ Parent ]
Surely it would be equally as valid to say that farms cash is a squalid excuse used by petty nationalists and denialists to perpetuate their disruption of the European project?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Sep 20th, 2009 at 08:12:37 AM EST
[ Parent ]
Write a diary about it rather than send us to read Eurosceptic "think tank" stuff in a campaigning anti-European newspaper.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Sep 20th, 2009 at 08:25:45 AM EST
[ Parent ]
"Move to strike as non-responsive, Your Honor!"

I take it you're not used to discourse on Scoop-type community blogs.

The point of diaries is that each of us does our own "heavy lifting": each one of us has the opportunity to present something - an incident, report, situation - and analyze it, and explain why we find merit in it, or why we don't.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Sun Sep 20th, 2009 at 10:30:46 AM EST
[ Parent ]
The reasoning in these responses leaves me flabbergasted.

You take it upon yourselves to qualify some sources as "eurosceptic" and, therefore, to be unworthy of consideration.

Why not organize a book-burning while you are at it?

For the record, I post for an audience wider than the responses that I get. It is up to that audience, if there is any, to come to its own opinion.

by DOCM on Sun Sep 20th, 2009 at 03:44:15 PM EST
[ Parent ]
I'm amazed that you're flabbergasted, if you had read much of the writing on this site, you would see that although it is a pro european site in general, we, between us have spent a large ammount of time considering eurosceptic positions and publications. Much Eurosceptic writing is indeed unworthy of consideration, in that it is characterised by lunatic nationalism, circular arguments, and argument aimed at moving towards a pre-aranged position, rather than arguing from observations and facts. (To me a lot of euroscepticism seems to be like a particularly cultish religion)

To say that we are akin to book burners, because we aren't bowing down before the Idols of a lunatic cult is particularly insulting

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Sun Sep 20th, 2009 at 03:59:56 PM EST
[ Parent ]
Vigorous debate isn't fun any more, DOCM? :-)

(I must admit the notion that I'm a Nazi because I consider the Daily Telegraph to be a Eurosceptic newspaper has me smiling).

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Sep 20th, 2009 at 04:05:47 PM EST
[ Parent ]
DOCM:
For the record, I post for an audience wider than the responses that I get. It is up to that audience, if there is any, to come to its own opinion.

The responses you got are pretty much typical of the audience of this site.

DOCM:

You take it upon yourselves to qualify some sources as "eurosceptic" and, therefore, to be unworthy of consideration.

As highlighted by ceebs above, we have seen a lot of Eurosceptic "material" and we generally don't find it worth of much consideration, if any. You may of course have a different opinion and it is indeed your prerogative.

DOCM:

Why not organize a book-burning while you are at it?

As you know very well, nobody mentioned anything close to book burning whatsoever.
As afew went into great lengths explaining the site operation to you, you are welcome to express your opinions and engage in a debate with other members, if you wish to do so.

However, you might want to check the attitude.

by Bernard on Sun Sep 20th, 2009 at 04:21:59 PM EST
[ Parent ]
The reasoning in these responses leaves me flabbergasted.

New User Guide.

You take it upon yourselves to qualify some sources as "eurosceptic" and, therefore, to be unworthy of consideration.

Doggerel. Why I won't read your book.

Why not organize a book-burning while you are at it?

Galileo Gambit. Godwin Alert.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Sep 20th, 2009 at 05:34:11 PM EST
[ Parent ]
You haven't read a word I've written.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt ät gmail dotcom) on Mon Sep 21st, 2009 at 05:49:40 AM EST
[ Parent ]
That would take all the fun out of it. Vigorous debate is what clarifies the issues.

The comments in your diary would serve debate just like the comments in this diary written by afew.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Sep 20th, 2009 at 05:21:18 AM EST
[ Parent ]
No Im afraid the point isnt obvious at all, you do seem to be working from a rather obscure set of assumptions which do not apply themselves to instant analysis. So the EU budgetary system isnt a fact? what are the facts that you wish the system to be compared to?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sat Sep 19th, 2009 at 03:16:36 PM EST
[ Parent ]


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