EU rebate. Too rich for a rebate

The European Commission thinks Britain should pay more

ACCORDING to newspaper reports, the European Commission is preparing for an assault on the unique rebate, currently worth €4 billion ($5 billion), Britain receives to cut its net budget contribution to the European Union. From Tony Blair's point of view, as he struggles to win round voters ahead of a referendum on the European constitutional treaty, the timing could not be worse.

In one sense, however, the Commission's attention is quite flattering. When Margaret Thatcher famously got her money back 20 years ago at a summit in Fontainebleau, Britain was the third poorest country in what was then the EEC. She got it partly because it seemed unfair that a country so poor was the biggest net contributor. Now, on the basis of income per head, Britain is the richest big country in the EU.

What's more, Britain's rebate, which is set at two-thirds of its net contribution, is actually going up. This is because, thanks to this year's enlargement, EU spending that would previously have gone to poorer parts of Britain will now go to new members, such as Poland and Slovakia. The consequence is that, as a percentage of national income, Britain will soon pay in less than any other rich member country - 0.25% according to the Commission, compared with 0.56% for the Netherlands, 0.54% for Germany and 0.37% for France.

Simply getting rid of Britain's rebate would be too draconian even for the Commission. If that happened, Britain's net contribution would soar to 0.62%. The Commission therefore proposes a new “mechanism” which would end the right to a rebate for any country that contributes less than a net 0.35% of GDP.

Having recently fought hard to retain its right to veto any change in its rebate, the British government is not likely to acquiesce meekly, particularly as the new arrangement would mean France once again doing much better than Britain because it continues to benefit from the common agricultural policy. Instead, expect Britain to demand further reform of the hated CAP in exchange for accepting the new mechanism.

• Primary Source