This note considers the EU's spending and how it is financed.Jump to full report >>
In 2015 the EU spent €140 billion. This is equivalent to around 1% of national income across the EU’s Member States. The majority of the EU’s spending goes on policies aimed at supporting farming and agriculture and improving Member States’ economies and competitiveness.
This briefing includes only limited analysis of what the UK contributes to the EU budget and receives from it. Our briefing The UK’s contribution to the EU budget goes into more detail on the subject.
The EU plans its spending in ‘financial frameworks’ that generally span seven years. The current framework runs from 2014 to 2020. The framework sets out the maximum the EU can spend each year and allocates spending to broad priorities. However, the framework isn’t a budget covering several years – the EU’s annual budgets are negotiated each year by the European Commission, the Council of Europe and the European Parliament within the limits set by the financial framework.
Over 40% of the €140 billion spent by the EU in 2015 went on its agricultural policies. Subsidies were provided to farmers – which is the EU’s biggest single spending area – and funding was provided to improve rural economies and farming’s productivity. A further 40% or so of the EU’s spending went to programmes aimed at improving the economies of the EU’s poorer regions and countries and improving competitiveness in all EU regions.
The EU’s revenues
The EU must run a balanced budget, its revenues must cover its spending.
The EU’s largest source of revenue are the contributions made by Member States. Member States contribute a share of their adjusted VAT receipts and their Gross National Income (GNI) to the EU. They also collect customs tariffs on behalf of the EU. Member States’ GNI contributions made up close to 70% of EU revenues in 2015.
The EU receives a small proportion of its revenues from other sources such as taxes on EU staff salaries, non-EU countries’ contributions to programmes, interest on late payments, and fines on companies breaching competition law etc.
The UK’s rebate
The UK receives a rebate on its contribution. The rebate was introduced, in 1985, to correct for the fact that the UK was making relatively large contributions to the EU budget but receiving relatively little receipts from it. The rebate is a permanent part of the EU’s revenue regulations. It can only be changed if all Member States, including the UK, agree.
Member States’ contributions to the EU budget and receipts they receive from it
Generally speaking, the richer Member States are net contributors to the EU budget – they contribute more to the budget than they receive from it. Poorer states are generally net recipients – they receive more from the EU budget than they pay in. In keeping with this, the UK made the second largest net contribution to the EU budget in absolute terms, and the third largest net contribution per head of population.
This briefing does not consider what Brexit means for the UK's contribution to the EU Budget. Nor does it cover the financial settlement that the EU expects the UK to make when it leaves the EU; an issue discussed in the media as the 'divorce bill', 'brexit bill' or 'exit bill'. These issues are discussed in the following briefing papers:
Commons Briefing papers SN06455
Author: Matthew Keep
Topic: EU budget