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)
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. 
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."