Talking Politics

Everything you need to know about the EU budget in five minutes

What's all the fuss about?

EU leaders are attempting to find agreement on spending plans for the 2014-2020 period. This is not a straightforward process. Unanimity is essential, for any one of the EU's member states can veto the proposals. If that happens, there won't be a deal.

Sounds... complicated...

It is more complex than you could possibly imagine. Fundamentally, though, it doesn't help that some of the EU's countries (like Britain) are net contributors to the budget, and so would much rather see the total number go down rather than up, while others (like Poland) are net recipients and so are keen to see the final total increase.

What will Britain's negotiating position be?

David Cameron wants to see a real-terms freeze in total EU spending. He makes the point that with spending cuts at home, it would be unacceptable for the UK to actually increase the amount of public money it is shelling out for the EU's budget.

But I thought the Commons voted for a real-terms cut?

Indeed they did. Tory eurosceptics combined with Labour's MPs to defeat the government and demand that the UK actually push for a reduction in the total size of the budget. But the vote was non-binding, so Cameron is just ignoring  them and pressing on with his approach nonetheless.

What are the chances of Britain getting its way?

Well - actually, it's not as simple as that.

Surely it is. Either Britain achieves a real-terms freeze, or the budget increases. You can't have both.

Well...

Oh God.

This isn't just about the total size of the EU budget. There are other factors in play, too. Like what the money is actually spent on. Proposals currently on the table suggest a significant cut to the two main areas of spending - structural funds and the Common Agricultural Policy (CAP) - in order to fund other areas that will promote economic growth more directly.

Surely the less money spent on the CAP, the better for Britain?

No - that's not right. Because certain bits of EU spending, like the CAP, are affected by something you might be familiar with - the EU rebate.

Of course I'm aware of Britain's rebate. I'm not a cretin. It's been the subject of spats between the UK and the rest of Europe ever since Margaret Thatcher first agreed it in 1985. The argument then was that Britain was one of the poorest countries in Europe, but was on track to be one of the biggest net contributors. So the rest of the EU gave us some money back. I'm just not clear what this has to do with the situation now.

They might have let us have our way then, but not this time round. The EU has changed. Other countries, like Denmark, are threatening a veto if they don't get a rebate of their own. A proposal is on the table to change the rebate formula, with adjustments to be made on a rolling basis. The UK government's position is to try and protect our rebate - but it's aware that changing what the EU spends its money on affects its overall size.

This really matters, though. Britain contributed 7.3 billion euros to the EU in 2011 - it would have been 10.9 billion euros without the rebate. I don't know what that is in pounds, but it sounds like a lot...

Quite. Fortunately, all is not lost. Britain likes to compare itself to France, which is a similar-sized economy and so contributes a similar amount, but gets far more out of the EU because of its large CAP payments. It's not a bad argument to suggest that this isn't entirely fair.

Alright. So Britain has set itself a nigh-on impossible goal to save its rebate, in addition to its very difficult goal of securing a real-terms freeze. That's fine. How do we work out how well the UK is doing?

Well...

You can't be serious.

... it's more complicated than that. There's more than one way of measuring EU spending, you see.

I am starting to feel giddy. Please explain.

What is actually spent in the EU won't be as big as the total number they're arguing about right now. Often, as in 2009, the total falls a long way short of the limits agreed in these negotiations. These talks are about agreeing the EU's credit card limits - the ceilings on spending.

Ceilings. That's plural. Why is that plural? That should not be plural.

There's the commitment ceiling, which is a measure of the legal promise to spend money, and the payment ceiling - slightly lower - which represents the maximum amount to be spent in any given year.

Can't we just focus on a single number?

The British government is concentrating on the payment ceiling, because the number is lower than the commitment ceiling. So if it can drive the payment ceiling down, then total EU spending will fall.

Are there any numbers on the table?

On 2011 prices, the total payment ceiling for the 2007-13 period was 993 billion euros. The European Commission had originally put forward a proposal to increase this to a whopping 1,035 billion euros. But European Council president Herman Van Rompuy has now come up with a fresh proposal of 973 billion euros.

Wait. That's actually lower than what we've just had.

Well, on its own terms it is. But did I mention that the EU only gets some of its funding from member states?

You... did... not...

Oh, yes. The bulk of it comes from European countries' coffers, but there are other sources - specifically from things like customs duties and a slice of VAT - which also help. The EU is proposing to increase those, which has an effect on the total - and on the UK's rebate. That's something Britain is likely to be arguing about.

My brain is going to explode.

Right. This seems like a good point to mention that it's not actually clear what Cameron's real-terms freeze promise actually applies to.

What the what?

It might apply to the commitments ceiling. Or the payments ceiling. Or it might apply to actual spending during the 2014-2020 period.

But we won't have the final figures on that until 2020, surely?

I'm afraid not. Come back in seven years time and hold David Cameron to account then. That's my advice, anyway.

Enough already. This has been an appalling guide to the EU budget.

I'm sorry. It's complicated. I did warn you.

All I want to know now is whether they'll actually reach a deal.

It's going to take ages. The whole affair is further complicated by the fact that every country is coming at the talks with their own priorities. Some, like the UK or the Netherlands, care about the size and the rebate. But others, like Austria, are interested in the shape of the spending plans, as well as the rebate. Net recipients like Poland, France and Spain are mostly bothered by the shape of the funding. That just adds another layer to confuse you even more.

I'm past caring now. Whatever.

My pleasure.

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