UK Rebate - History

History

The rebate was negotiated by UK Prime Minister Margaret Thatcher in 1984. The main reason for the rebate was that a high proportion of the EU budget (at that time 80%, now approximately 41%) is spent on the Common Agricultural Policy (or CAP), which benefits the UK much less than other countries as it has a relatively small farming sector as a proportion of GDP. Payments to the EU are largely funded by VAT returns and are roughly proportionate to the size of the economy. The rebate was also sanctioned because, at the time, the UK was the third richest member of the ten European Economic Community members (now the European Union).

The rebate is calculated as approximately two-thirds of the amount by which UK payments into the EU exceed EU expenditure returning to the UK. Currently the rebate is worth £5 billion (GBP) a year and the UK remains one of the largest net contributors. The method of calculating the rebate is complex, but its effect is to increase contributions required from all other member states, to make up the loss from the overall budget. Germany, the Netherlands, Sweden and Austria all have their contribution to make up for the rebate capped to 25% of the figure which would otherwise apply, leaving France to make up for the main part of the increase in what Britain would pay without the rebate. Final calculations of the rebate are only made four years after the budget year in question.