UK rebate

The UK rebate (or UK correction) is a financial mechanism that reduces the United Kingdom's contribution to the EU budget in effect since 1985. It is a complex calculation which equates to approximately 66% of the UK's net contribution – the amount paid by the UK into the EU budget less EU expenditure in the UK. Based on a net contribution of €12.1 billion (£9.8 billion) in 2014, the UK Treasury estimates the 2015 rebate amounted to €6.2 billion (£4.9 billion), reducing the ultimate UK contribution for the 2015 budget to €16.6 billion (£12.9 billion). Although the rebate is not set in the EU treaties, it is negotiated as part of the Multiannual Financial Framework (MFF) every seven years and must be unanimously agreed.

In April 1970 the six founding member states of the European Economic Community (EEC) adopted the so-called 'own resources system' as the means of funding the EEC budget. Under this system revenues were to flow automatically to the EEC budget rather than through agreement of the national parliaments, as had been the case until then, and calculated based on three elements:

As the UK’s VAT base in comparison with gross national product (GNP) was proportionally higher than in other member states, and the UK was more open than other member states to trade with non-EEC countries, this system implied a disproportionate contribution by the UK when it joined the EEC in 1973. Additionally, the fact that around 70 per cent of the EEC budget was used to finance the Common Agricultural Policy (CAP), and that the UK had a small agricultural sector meant that the UK gained few receipts under the EEC's redistributive policies.

To address this, at the Fontainebleau European Council in June 1984 Prime Minister Margaret Thatcher successfully negotiated the UK Rebate which was adopted in the May 1985 European Council decision. It has been in place ever since.

In 2005, Prime Minister Tony Blair agreed to exclude from the calculation most enlargement-related expenditure (with a progressive phasing-in of the change from 2009 onwards), so as to contribute to the financing of the enlargements to the European Union, with the accession of Central and Eastern European states, that the country itself had strongly supported. The objective was to address what was widely perceived as an unfair effect of the rebate, since the original mechanism would have resulted in the UK contributing little to the costs of enlargement. These changes were adopted in the June 2007 European Council decision.

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