The UK and Europe
How much does Britain really pay into the EU budget?
Iain Begg / Apr 2016
One of the key fault-lines in the UK’s EU referendum campaign centres on the size of the country’s contributions to the EU budget. Claims and counter-claims abound and it should come as no surprise that both sides of the debate tend to cherry-pick the statistics that support their side of the argument. Both are also prone to misrepresenting the facts and neglecting data that tell a different story.
So how much does the UK contribute? Conceptually there are several different ways of measuring the flows to and from ‘Brussels’ through the EU budget and this accounts in part for the general sense of confusion that surrounds the subject. All EU members pay in to the budget and all receive money from EU spending programmes, ranging from the Common Agricultural Policy to the Horizon 2020 research initiatives. However, some EU spending does not directly come back to members because it is for policies implemented collectively, notably to support what the EU does in the rest of the world, such as spending on humanitarian aid. And a relatively small proportion of EU spending (around 6 per cent) is earmarked for the administrative costs of running the Union.
Overall, the EU budget amounts to around one per cent of the total annual output of the EU, as measured by gross domestic product (GDP). To fund it, member countries are expected to contribute one per cent of their respective national GDPs. However, ever since Margaret Thatcher negotiated the famous rebate in 1984, the UK has been required to pay less than this proportion, with others then obliged to pay relatively more to make up the difference. The result is that the actual amount that the UK ‘sends to Brussels’, to use a phrase often employed in the debate, is not the hypothetical gross contribution, but an amount that has already been reduced because of the rebate.
Although this is well-known, campaigners all too frequently use the higher figure, despite the fact that it is wrong (and some of those making the claim know this full well). For instance, the contention (by the Vote Leave campaign – featured prominently on its home page) that the UK has paid more than half a trillion pounds is inaccurate. The calculation aggregates UK payments to the EU since first joining in 1973, after reflating the amounts from earlier years to current prices. While the methodology employed can be justified, the Vote Leave calculation makes use of the wrong figure by ignoring the rebate. An amended calculation (using the same methodology but applying it to the amount the UK actually pays) shows that the half trillion figure exaggerates the true figure by fully £110 billion.
Similarly, the often heard claim that the UK sends ‘£350 million per week to the EU’ is based on the same incorrect measure of budget contributions. The amount that the Treasury remits to Brussels, and thus the direct cost to UK taxpayers, always has the rebate deducted before payment is made. Because of this, the correct figure, taking account of the rebate, should be around £280 million per week (based on 2014 data).
There are other ways of looking at what Britain pays, for example by taking account of money that flows back to the UK through spending from EU programmes. A net contribution can be calculated in this way by deducting what the UK receives from what it contributes. In 2014, the receipts were a little under £6 billion. Throughout the country’s years of membership since 1973, only the UK and Germany have consistently been net contributors to the EU’s finances, although in recent years, many more countries have joined them.
Remain campaigners know this, but often blur the picture by arguing that the UK benefits in other ways. They then arrive at a figure which conflates budget flows with a range of other benefits to arrive at figures such as a net £3,000 gain per household per year. This too is misleading for the simple reason that it is comparing apples with oranges.
Ultimately, the best advice is that citizens, voters and commentators should be wary of the figures put forward by both sides of the campaign and take everything they hear with a healthy pinch of salt.