EU Budget: UK net contribution – confused by the figures?

11 March 2016

Article by Gregg Jones, Head of EU Office, National Assembly for Wales  

We’ve been getting a lot of questions asking how much the UK and Wales contributes to the EU budget and how much it gets back by way of different funding. Is it possible to work out accurately the net cost of EU membership to the UK and Wales?

There are different methodologies used at EU level and by the UK Treasury to calculate how much the UK Government pays into and how much it receives from the EU. Whichever methodology is used the UK is a net contributor to the EU Budget (i.e. pays in more to the EU than it receives back). However, the European Commission figures (presented in euros) show a lower net contribution by the UK than the Treasury figures (which are presented in pounds sterling) as we’ll see below.

European Commission figures

The European Commission publishes a Financial Report each year which sets out the contributions to and receipts from the EU budget for all Member States. The most recent Financial Report is for 2014 which states that the UK made a net contribution of just under €5 billion (EUROS) to the EU (see table on page 145 of the report). The European Commission figures include an adjustment for the UK rebate (a repayment to the UK annually by the EU originally negotiated by Margaret Thatcher when she was Prime Minister in 1984). The report does not provide figures below Member State level, so no details are available for Wales.

UK Treasury figures

A UK Treasury Report published in December 2015 puts the total UK net contribution to the EU Budget at £9.785 billion (POUNDS) in 2014, including the adjustment for the UK rebate. The Treasury’s Report explains the differences as follows (Paragraph 3.9):

..the Commission’s numbers take into account all of the UK’s receipts, including those that go directly to the UK private sector, such as funding for research paid directly to UK universities. The OBR [Office of Budget Responsibility] numbers capture only those receipts that pass through the UK public sector.

Expert analysis

Professor Iain Begg from the London School of Economics recently published a research paper “Who pays for the EU and how much does it cost the UK?” on the UK in a Changing EU web-site. This provides a detailed analysis looking at the different methodologies used by the European Commission and the UK Government in arriving at figures on contributions to and receipts from the EU Budget. Professor Begg’s paper notes a number of other differences in the Commission’s methodology to explain the discrepancy between the UK and Commission figures. The Commission discounts ‘Traditional Own Resources’ (i.e. income from customs duties and sugar levies) from its calculations and also distinguishes between expenditure for the ‘benefit of the recipient country’ and expenditure that is for the ‘benefit of the EU as a whole’ (e.g. costs of EU institutions located in a Member State).

Net impact on Wales

In addition to the above calculations, some bodies have tried to estimate the net financial impact on Wales of the UK’s EU membership. For example, the Centre for European Reform in a report in 2014 calculated Wales would be a net beneficiary from the EU for the period 2014-2020 to the value of around €878m per annum. Note that this report uses the HM Treasury figures when calculating the overall contribution by the UK to the EU budget, and this contribution is apportioned to the ‘home nations’ on the basis of the proportion of each nation’s tax contribution to HM Treasury. Against this figure is offset the amount of EU funding each nation is set to receive during the period, and as we can see this results in Wales being projected to be a net beneficiary.

Looking more specifically at the EU funding that Wales could receive during 2014-2020 the two main sources of funding will be the Structural Funds (EU contribution of around £1.8bn for the period) and CAP (annual contribution of around £240m is anticipated plus around €355m in Rural Development funding for the period). Wales should also benefit from significant amounts of funding from the EU’s Research and Innovation Programme Horizon 2020, with Welsh universities and businesses securing over €140m from FP7 during 2007-2013, the predecessor programme. The Ireland-Wales Cross Border Co-operation Programme has an EU allocation of around €80m to be shared between Ireland and Wales, whilst Wales also has access to a number of other competitive EU programmes – see WLGA Funding Guide for further details of these.

European Investment Bank investment in the UK

One other source of finance not included in EU Budget figures discussed above is the European Investment Bank. The vast majority (around 90%) of EIB funding goes to projects in the EU, and in 2015 the UK received record levels of investment from the EIB, with €7.7bn of EIB support (11.2% of total EIB lending for the year).

The EIB has received increasing attention in Wales in recent years, with major investments in Swansea University and exploration of the possibility of EIB funding to support major capital infrastructure projects (as part of the Investment Plan for Europe – see our previous blogs on this) in Wales including the proposed South Wales Metro. It is an area that the Assembly has looked at in depth in recent years through the work of Rhodri Glyn Thomas AM on the Committee of the Regions, whilst Enterprise and Business Committee visited the EIB HQ in Luxembourg in June 2016 and Environment and Sustainability Committee visited the EIB office in Brussels also in June to look at how Wales could make effective use of this resource.

The EIB is an EU Institution, and as such membership is restricted to EU Member States. Should the UK withdraw from the EU it would also cease to be part of the EIB, although this would not necessarily preclude the UK from accessing EIB finance – this would depend on the deal negotiated by the UK Government with the EU on its withdrawal. The EIB does invest outside of the EU providing support to developing countries, EU accession states and external partner countries (including EFTA) – see EIB web-site for more details. However, over 90% of its financing investments each year go to EU Member States.

Some clarity in complexity?

Hopefully this blog post gives some clarity over where discrepancies in figures quoted in the media come from, namely the different methodologies used at EU and UK level. Fundamentally, the calculations involved in estimating net contributions to the EU are incredibly complex, and a number of possible methodologies can be used. As such, a single, indisputable answer cannot be reached. Furthermore, the EU and UK Government figures don’t take into account investments made into the UK by the EIB, which are not insubstantial as is seen in the €7.7bn of investments to the UK in 2015.

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