How EU contributions are calculated
The subject of how much the UK pays to the EU has been debated widely. The numbers used are principally based on figures reported by the ONS in our annual publication ‘The UK Balance of Payments’ which is often referred to as the Pink Book. So how do UK contributions to the EU work, and what does the Pink Book say?
The UK’s contributions depend on what other member states pay. Each EU member contributes to a budget that is agreed by those members. The contributions from each member account for a percentage of that budget, which is calculated via two main factors: Gross National Income, and the size of the VAT base.
This gives a theoretical liability that each member state would pay. However, before the UK makes its payment, the UK’s adjustment (technically known as the ‘Fontainebleau abatement’, colloquially known as the UK rebate) is deducted. In other words, the UK government takes off the value of the abatement from the full theoretical liability before the gross payment is made to the EU. This means the full amount of the theoretical liability is never paid.
Additionally, all Member States remit customs duties to the EU as part of their official contribution to the EU. Member States retain 20% of all customs duties collected as means to cover collections costs and remit the remaining 80% to the EU for the purposes of the EU budget.
Next, the EU also pays money to the UK public sector, to administer what are known as ‘shared management’ programmes. Under these, the EU makes payments to the UK authorities, which are then distributed in accordance with EU rules – for example, to farmers.
To calculate the balance, or net payment, we need to deduct the money the UK public sector receives from the EU from the money the UK pays to give a value for the UK’s net payments.
But we are not quite finished. The private sector is able to access funding from the EU but these are not considered ‘official transactions’. The net figure published in the relevant Pink Book only takes account of payments the UK government receives from the EU, not payments that the EU makes directly to the UK private sector – such as grants to universities. While the Pink Book table is not designed to capture those payments, the European Commission provides net figures including payments to the UK public and private sector.
The table below shows some of the key figures: the gross payment after the abatement is applied, the net contribution (after payments from the EU to the UK public sector only) and the net contribution after including payments to the UK private sector are made from the European Commission. So, when people are talking about the UK’s contributions to the EU, it really depends on what concept you are considering.
|Gross payment (after abatement)||15.7||14.7||14.8||13.9||12.7||14.3|
|Net payment to the EU (net of EU payments to public sector only)||11.2||9.6||10.6||9.4||8.3||9.8|
|Net payment to the EU (net of EU payments to public and private sectors)||9.1||5.7||10.1||7.8||6.5||7.9|
Footnote: averages have been calculated using unrounded values.
The other point is that the contributions vary considerably between years. This can be because of the size of the UK economy (our Gross National Income) relative to other member states, and also changes in exchange rates. This means taking one year’s data in isolation does not always give the full picture.
The 2019 Pink book will be published on 31 October 2019, but the underlying data consistent with it will be published on 30 September 2019 and will this year include the EU contributions data up to and including 2018 with revisions to previously published estimates. We will update our explainer at this point to help put these numbers in context, but understanding the different concepts is important as well as being aware of the variation between years.
In the table above ‘Gross payment (after abatement)’ is equivalent to ‘Total debits’ [GCSM]; ‘Net payment to the EU (net of EU payments to public sector only)’ is equivalent to the negative of ‘Balance’ [BLZS] in Pink Book 2018, Table 9.9.
The European Commission’s estimates of UK’s net contributions to the EU were calculated by subtracting ‘Total Expenditure’ from ‘Total own resources’, using the EU Expenditure dataset which can be found in the European Commission’s data library.
Data from the EC has been converted into £’s sterling using the annual average exchange rate for each year from the Bank of England website.