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EU budget

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Britain’s budget contributions are discussed here.

What is the EU budget?

The budget is the main funding source for the EU and sets out the EU’s long-term spending priorities and limits over a six-year term. Whilst small compared to some national budgets (€142.5 billion in 2014), it has grown significantly since its creation. This growth has been driven by an ongoing expansion of member states and EU activity.

Once agreed, the budget allows the EU to pursue its own policy agenda without external pressure. Its main purpose is to fund policies that try to connect the EU and make it more competitive. Because these aims are fairly broad, the budget is spent in a variety of ways: farm subsidies, creating growth & jobs, rural development, and reducing economic gaps between regions. Whether the EU is successful in these areas is highly controversial.

The budget is funded primarily by taxpayers in EU countries. The amount of money a member state contributes is  largely dependent on how well its economy is doing. The more economically successful an economy is, the more it has to pay into the budget.  In 2013 the UK paid in just over €17 billion (the fourth largest contribution that year). Germany was the highest contributor (€29 billion) and Malta the lowest (€80 million).

In 1957 the Treaty of Rome was signed, creating the European Economic Community (EEC). A year later the first EEC budget was proposed. It was modest, and was solely made up of direct contributions from the six nations who joined: France, West Germany, Italy, the Netherlands, Belgium, and Luxembourg. The EEC would eventually become the EU.

The budget grew throughout the 1960s due to the creation of the Common Agricultural Policy (CAP). This policy was created to subsidise farming and soon agricultural expenditure made up the majority of the budget.

Due to expansion of the EEC’s role and influence, a new budget model was created in 1970. This model aimed to diversify and increase the funding stream of the EEC. As well as direct contributions from member states, the EEC would be allowed to raise money itself via its own resources, through taxes on imports and VAT contributions from member states.

How the budget works
Britain joined the EEC in 1973 and the budget became extremely controversial during the 1970s and 80s. In 1984 this came to a head when Britain, which was paying more into the EU budget than it got out, demanded some money back as a rebate. It was agreed that the UK would get back 66% of its net contribution in the previous year. Today, even with the rebate, the UK is one of the largest net contributors to the budget. Had it not been for the rebate, in 2007 its net contribution would have been even bigger than Germany’s.

After talks in November 2012 collapsed, an agreement for the 2014-2020 budget was reached in February 2013. There was a cut in EU spending for the first time ever, with a 3.3% reduction to the current budget.

In 2014 Britain was asked to pay an extra £1.7 billion (€2.1 billion) towards the EU budget because the British economy performed better than expected. Taking into account the UK rebate, the bill Britain paid was reduced to £850 million.

The EU budget is checked by the European Court of Auditors. The primary role of the court is to check if the budget has been managed correctly and spent legally. In 2014, the court declared that just over €6 billion of the EU’s budgetary spending did not follow the rules and should not have been paid out.

The EU budget is negotiated every seven years. A budget plan is proposed by the Commission and then debated by the European Council and the European Parliament, both of whom have to vote to agree on the budget. The European Commission is responsible for spending the budget.