Thursday, 12 January 2017

The EU Budget: Who Pays What?

In the lead up to the UK's exit from the European Union, there will be debates not only on the question of market access and migration but also on the EU's budget. Twenty-eight member countries both pay into the EU central budget and receive funds from it, the numbers being broadly related to the relative size and wealth of an economy. For example, in 2015, Germany paid in most, 28.1bn, while receiving 11bn, to give a net payment to the EU of 17.1. At the other end of the spectrum, Poland paid in €4.2bn and received €13.4bn, so was a net recipient of €9.1bn. However, there are some interesting anomalies in the payments dating back to earlier budget debates among members.

The EU budget is no longer so dominated by the farming lobby as it was in 1985, when 70% of payments went on agriculture. But direct payments to farmers still account for 30% of the total, with another 9% on 'rural development'. It is this mechanism that France, in particular, has used to secure large payments from the central EU fund, amounting to €9bn in 2015 under the 'Sustainable growth: natural resources' budget. The agricultural payments vexed the Brits back in the 1980s, and Prime Minister Margaret Thatcher secured a rebate for the UK. In 2015, this amounted to €6bn, and the EU accounts show how this 'UK correction' was allocated to other EU members ... with France paying back the largest amount, nearly €1.5bn.

So, when the UK leaves, France might stand to gain somewhat by not paying the UK correction item. However, the bigger problem is that the UK has been the second largest net contributor to the EU budget, significantly more than France, despite both countries being not so far apart in terms of GDP and GDP per capita. Budget figures for 2015 show the UK with payments into the EU of €21.4bn, close to France's €20.6bn. But the UK received back just €7.5bn compared to France's €14.5bn. 

The following chart is taken from European Commission data. For payments made by each country it adds the total national contribution and the 'traditional own resources' payments passed on to the EU. The latter item is often missed out in graphs that are derived from an EU summary table, which leads to understating the actual payments. For receipts of funds from the EU budget, all the standard items are included.


When 'net payments' are negative, this means that the country has paid more into the EU budget than it has received; when positive, that net funds have been paid to it from the EU budget.

Let us see how this plays out!

Tony Norfield, 12 January 2017

1 comment:

  1. For all of Viktor Orban's right-wing ranting against the EU, his government seems very happy to take its money. And yes, it will indeed be very interesting to see how things play out minus the significant chunk of change the UK has kicked in over the years.

    Love this blog, by the way. Your post a few weeks back about the Government Pension Fund of Norway was incredibly interesting and illuminating. I will be picking up a copy of The City quite soon.

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