Following Bill Cash’s amendment passed unanimously by the House of Commons, David Cameron was able to successfully negotiate the EU’s long-term budget for the 2014 – 2020 period (€960 billion), which, for the first time, was cut in real terms. David Cameron is fighting hard to protect British’s financial interest in Brussels yet British taxpayers will continue to pay substantial amounts of their money to Brussels. The Office of National Statistics’ 2014 Pink Book clearly shows that the UK contributions to the EU have risen from 2007 to 2013. Whereas in 2007 the UK’s net contribution to the EU was £4,123 in 2013 it has reached the substantial figure of £10,465. According to figures published by the European Parliament the UK contributed, in 2013, €14.51 billion to the EU budget, after a rebate of €3.8 billion.
Last September the Council agreed to a 2015 EU budget of EUR 140.00 billion in payments and EUR 145.08 billion in commitments. Compared to 2014 whereas the European Commission has proposed for an increase of 4.9% in payments and 2.1% in commitments, the Council’s position provided for an increase of 3.3% and 1.7% respectively. Unsurprisingly, the European Parliament, which has always sought a bigger budget for the EU than that proposed by the Commission and Member States, voted to increase the budget, raising commitment appropriations to €146.3 billion, and payment appropriations to 146.4 billion, which represented an increase of 8% compared with last’s year budget. The Council did not approve the European Parliament’s amendments, consequently a conciliation committee was convened. However, as the 21-day conciliation period has expired and no agreement has been reached the Commission had to propose a new draft budget for 2015.
The Commission proposed €145.2 billion in commitments, which represents an increase of 1.8% and €141.3 billion in payments, which represents an increase of 0.7% compared to the 2014 EU budget. The European Parliament and the Council reached a compromise setting the total payments at €141.2 billion and total commitments to €145.3 billion. The Council and the European Parliament then formally adopted the compromise deal before the end of the year. The adopted Budget represents a €800 million cut compared to the Commission’s original draft budget, which was welcomed by the Government. However, the Government could not support the annual budget package as, due to QMV, it has not succeed in ensuring lower levels of payments.
The UK contribution to the EU budget in 2015 will be around 11% of the total amount but the exact figures are dependent on actual budgetary outturns. It wont be a surprise if the Commission puts forward draft amending budgets asking further contributions from member states to make up for shortfalls in last year’s EU budget, as it has happened in 2012, 2013 and 2014, particularly having in mind the so called “unprecedented scale of unpaid bills.” It is important to note that a request for extra funds can be approved if a qualified majority of member states supports it consequently the UK can be outvoted. It is important to mention that last November the European Court of Auditors warned, in its landscape review of risks to the financial management of the EU budget, that “In addition to the €908 billion (payments) agreed for the multiannual financial framework (MFF) 2014–2020, Member States will in the future be required to contribute a further €326 billion for commitments made under previous MFFs.”
The GNI own resource is the largest source of revenue of the EU budget, as it accounts around 75% of the EU budget. Under Council Decision 436/2007 on the system of the European Communities’ own resources, the GNI own resource is a uniform percentage rate (0.73%) applied to the GNI of Member State. The shares of each Member State in the GNI base is determined for the financing of the EU budget based on the GNI data transmitted by them.
The Regulation on the harmonisation of gross national income at market prices (GNI Regulation) requires all member states to provide, before 22 September each year, the European Commission/Eurostat, with figures for GNI for the preceding year as well as any changes made to the figures for previous years. The main aim of these so-called GNI Questionnaires is to provide information on cases where there have been considerable changes to and revisions of the Member States’ GNI calculations. The Eurostat assesses whether the member states have measured GNI correctly or whether improvements are necessary. In this case, the Commission notifies the permanent representatives of the Member States concerned of the required improvements, in the form of reservations on those country’s GNI data.
Every October, the Commission and representatives of each Member state meet to check whether there are differences between the original GNI estimates and the most update GNI for the previous year, based on the figures provided by each Member state, and whether there any further adjustments to previous GNI data.
Under Article 10(7) of Regulation 1150/2000 on the system of the Union’s own resources any changes to the gross national product/gross national income of previous financial years gives rise to an adjustment of the balance of the Member State concerned. Member states’ individual GNI contribution is accordingly adjusted upwards or downwards to compensate for the adjustments. As a result of the application of this provision there has been an adjustment of balances based on GNI/GDP for 1995 and subsequent financial years. Last year’s annual automatic adjustment was exceptional high as it included GNI re-calculation dating back to 2002 for most Member States and to 1995 for one hence whilst in 2013 the total adjustment was 360 million euros in 2014 it was 9.5 billion euros.
Last October the Commission sent to all Member States an information note on VAT and GNI balances setting out their contributions and required several Member States to enter on 1 December 2014 into the own resources account adjusted GNI contributions. Member states have given to the Commission the power to implement these “adjusted figures” by 1 December every year. Under this so-called technical process there is no need for a decision by the budgetary authority, the Council and the European Parliament, but it is applied directly by the Commission. However, the Commission has demanded substantial amounts from several member states particularly from the UK, which was far from being a “technical exercise”.
The Commission has demanded the UK to pay an additional €2.1 billion, the Netherlands €642m, Italy €340m, Ireland and Latvia €6,5m, and even Greece, Cyprus and Bulgaria have been asked to pay further money. In the other hand, the other member states will receive rebates including France (€1bn), which has been constantly failing to cut its deficit to three percent of GDP, as required by the Stability and Growth Pact, and Germany (€779m). It is at least ironic that Germany, the biggest eurozone economy, will receive a rebate whereas struggling economies such as Italy, Bulgaria, Greece and Cyprus will have to pay. It is well known that there is no growth in the EU, particularly in the eurozone, and the European Commission is desperate to boost economic growth and competitiveness yet it is punishing member states, particularly the UK and Netherlands, for having a healthier economy and performing better than majority of the other EU member states.
All member states were required to pay the full amount of the above-mentioned adjustments by 1 December. David Cameron acknowledged that annual adjustments to contributions are part of EU membership but it described as unacceptable the unprecedented demand for a £1.7 billion payment. He said “Britain will not be paying €2 billion to anyone on 1 December, and we reject this scale of payment.” But, the former European Commission made very clear that it couldn’t extend the payment’s deadline unless the regulation on own resources was amended. In fact, it stressed that there was nothing else it could do but to launch infringement proceedings against Britain, or other member state, if they fail to pay on 1 December. Hence, Britain could have faced fines and required to pay interests.
David Cameron put his foot down and refused to pay on 1 December. The Prime Minister interrupted the October European Council meeting to seek an urgent resolution, and at his insistence, all EU leaders agreed that the finance ministers should discuss the issue as a matter of urgency. There was, in fact, a general agreement among all member states that the rules should be changed, as they did not foresee special circumstances when member states were asked to pay substantial adjustments.
On 7 November, the Economic and Financial Affairs Council (Ecofin) stressing that such demand could result “in exceptionally high fiscal implications” for Member States invited the European Commission to put forward an amendment to the regulation on own resources that would allow member states additional time to pay in the event of exceptional circumstances. It is important to note that before adopting any amendment to this regulation the Council is required to seek non-binding opinions from the European Court of Auditors and the European Parliament hence there was the possibility of the new rules not being adopted before 1 December. Being aware of this, the Ecofin stated “Taken into account the tight deadlines, this amendment should come into effect by the 1 December this year (retroactively if needed).” In fact, the MEPs were considering not issuing their opinion until the Council has made concessions on the 2015 budget.
The Government has succeeded in postponing, without an interest penalty, the UK’s 2014 VAT and GNI balance adjustment, as at its insistence all EU member states agreed on a mechanism that will allow Britain, as well as any other member state, to delay payment and to pay by interest free instalments when GNIs reviews generate substantial charges. George Osborne told the House of Commons “we have halved the Bill, have delayed the Bill, will pay no interest on the Bill, and have changed the rules of the European Union so that such unacceptable behaviour never happens again.” Moreover, he said that the UK “will pay nothing this year, and will instead make payments in two instalments in July and September, in the second half of next year”.
Hence, on 12 November the European Commission put forward a proposal amending Regulation on the system of own resources. The Council was only able to adopt the amendment on 18 December, as the European Parliament has solely issued its opinion on 17 December. Nonetheless, the amendment has started producing its effects from 1 December 2014. The Council, at the UK’s request, was able to prevent “that the annual own resources adjustments create an unreasonably heavy financial burden on member states just before the year-end.”
Under the amended Regulation Member States, which have to pay exceptionally high additional contributions to the EU budget as a result of the annual revision of their VAT and GNI data, have the possibility, under certain conditions, to delay payment of the additional amounts, interest free, until the first working day of September of the following year. This provision can be activated in two situations, by individual member states, if the amount of their additional contribution to the EU budget, as a result of the annual adjustment, exceeds 2/12 of they yearly contribution, or if there is an excess of the global threshold, which will happen if the total additional contributions to the EU budget to be made by all Member States, put together, exceeds half of one twelfth of their total yearly contributions. Last year the UK’s, as well as other three member states, gross adjustment exceeded their individual threshold, as above-mentioned, hence they were eligible to delay payments of their adjusted contributions up to the first working day of September 2015. In fact, last year all Member States’s total gross adjustments was greater than the global threshold, consequently all Member States were entitled to postpone payment of their contributions.
The amended Regulation requires member states, that request delayed payments, to provide the European Commission with a binding schedule for those payments, before the first working day of December. Hence, those member states will be required to pay interest if they do not respect the agreed schedule.
As above-mentioned, last year adjustments of the VAT and GNI balances resulted in substantial additional amounts to be paid by some Member States, which has constituted a windfall for the EU budget. The revision of the forecast to Traditional Own Resources and VAT and GNI balances has resulted in a reduction of total Member State contributions of €9.947,7 million. Consequently, the Commission proposed an Amending Budget (DAB 6/2014) whose main purpose was to return to Member States their share of the additional contributions to the EU budget based on their share in EU 2014’s GNI. Following the adoption of the amendment that allows member states to defer payments in exceptional circumstances, eight Member States, including the UK, have decided to delay the transfer of funds to the EU. Thus, the European Commission put forward an amending letter to the DAB No 6 revising the amounts, as it has considered the amounts paid by Member States to the EU on the first working day of December 2014, which amounted €4.1 billion. There was therefore a reduction in the requirements for own resources of €4 095,5 million, reducing Member States’ GNI contributions by €4 515,5.
The UK was initially required to pay to the EU budget a gross payment of €3.6bn (£2.9 billion) to which a reduction of €1.491 (£1.2 billion) has been applied, following the adoption of the DAB 6/2014. The UK was therefore facing a net cost of €2.1bn (£1.7bn). As the British rebate will apply in full the €2.1bn (£1.7 billion GNI) surcharge has been halved to around €1bn (£850 million). Hence, due to the Government negotiations, the UK has paid nothing on 1 December 2014, the bill of £1.7 billion has been halved and will be paid by instalments, interest free. This has been described by the Government as “the best possible deal for the UK.”
The Government has been working hard to limit EU spending in order to reduce costs to UK taxpayers. It was able to cut the EU’s long-term budget for the 2014 – 2020 period and to halve and deferred the payment of the £1.7 billion surcharge. However £850 is still a considerable amount of money, particularly having in mind that year after year substantial amounts from the EU budget are spent against the EU rules. The ECA has not signed off the EU accounts for 20 years. It has confirmed the EU 2013 accounts as reliable however it couldn’t give a clean opinion on EU spending, as it continues to be affected by “material error.” The European Commission control systems continue to be ineffective in ensuring the regularity of payments. This means that €7bn was spent against EU rules governing the spending, therefore it should not have been paid from the EU budget. The European Court of Auditors particularly stressed that Brussels has been too focus on spending the money rather than achieving results and EU policies objectives. In fact, ECA’s special reports have been showing that EU funds are not effective in helping to achieve EU policies objectives and reveal that EU taxpayers’ money is not being properly spent. These reports show the EU budget wastes millions of taxpayer’s money. The EU funds do not deliver value for money for British taxpayers.
Year after year and nothing in the overall reality has changed; in the meantime taxpayers’ money is being spent in a system that does not work. The British voters have been paying, as taxpayers for direct contributions to the EU, as consumers because of the high prices and costs endured by UK business in complying with EU regulations, as well as higher food prices, which have resulted from implementation of the Common Agricultural Policy and Common Fisheries Policy. The demand by the European Commission to the UK to pay extra money to the EU budget is the final straw, particularly when the EU monitoring and accounting system is inadequate. The time has come to say No and stop paying this vast amount of money for running the EU, which is a failing project.