Commission braced for row over plan to scrap UK rebate

By David Cronin

Date: 08/07/04

THE European Commission will next week re-ignite one of the bitterest arguments between EU states by proposing an end to the UK's budget rebate.

Budget Commissioner Michaele Schreyer will put forward a more evenly spread method of compensating those states that contribute more to the EU budget than they receive.

She will argue, in the face of strong opposition from her UK colleagues, that changed economic circumstances justify removing the mechanism for the rebate agreed in June 1984.

"When the UK rebate was founded, it could be justified because Britain was below the average standard of living [in the then EEC] and at the same time was paying in large sums," a Commission official explained. "But things have changed dramatically; it is now one of the richest countries in the EU.

"It wouldn't be justified to have the poorest countries in the EU financing the UK rebate," he said, including many of the mostly ex-Soviet bloc states that entered the Union on 1 May.

As part of the Commission's proposals, member states would be entitled to refunds only once their net contributions to the budget rose above 0.35% of their gross national income (GNI). The maximum possible refund would be l7.5bn.

This would spell the end of the current system, where the UK can claw back two-thirds of its net contribution, for a rebate worth l4 billion a year.

Under Schreyer's plans, the UK would become the biggest net contributor to the EU's budget in 2007-13 (with 0.51% of GNI, followed by the Netherlands and Germany, both 0.48%). If the present system were retained, the UK would pay only 0.25% of GNI - behind the Netherlands' 0.56%, Germany's 0.54%, Italy's 0.41% and France's 0.37%.

The UK rebate, introduced after a dogged campaign by then prime minister Margaret Thatcher, has since been fiercely defended by her successors, John Major and Tony Blair.

A British official described as "disingenuous" the argument that the rebate should be abolished in response to changed economic trends. He said that Blair would advocate its retention by continuing to point out how the UK receives relatively low sums from the farm and regional policy purses.

"People are missing the point that the main distortion is the CAP [Common Agricultural Policy]," he added.

"Our view is that while the distortion still exists, the rebate still exists. The best way to reduce the contributions of the new member states is to reduce the budget overall," he said.

The Netherlands, current holder of the Union's rotating presidency, is adamant that the UK rebate must go.

The Hague is the largest per capita contributor to the budget. Discussions on the rebate will be just one of several disagreements over the EU's spending programme for 2007-13 to be discussed during the Dutch presidency.