The EU budget is worth about €123bn (£84bn) a year.
Almost half of the budget is spent on the Common Agricultural Policy. Most of the rest of the budget is spent as Structural and Cohesion Funds, which are designed to reduce disparities in prosperity across the Union.
The remaining funds are spent in areas such as the EU’s large development budget (the EU is the world’s biggest aid donor), maintaining the internal market, and administering the Union.
The EU’s budget is set each year through an agreement between Member States and the European Parliament. But these annual budgets have to be set within overall ceilings agreed for a seven-year “Financial Perspective” period.
In December 2005, EU Member States agreed a budget for the 2007-2013 Financial Perspective. The budget agreed is worth €862bn over the seven years, or 1.045% of the EU’s Gross National Income (GNI).
UK contribution to the EU
The EU raises its revenues through customs duties, including those on agricultural products, sugar levies, a VAT-based payment and a contribution based on GNI.
In June 1984 the UK secured an “abatement” from the EC budget because the UK got less back from EU support funds than other wealthier Member States. Under the agreement reached in December 2005, the UK is one of five EU Member States to benefit from a correction (abatement) through the EU’s Own Resources system (along with Germany, the Netherlands, Austria and Sweden).
Without the abatement, the UK would have paid net, over 8 times as much as Italy and over 11 times as much as France between 1996-2005. Even with the abatement, the UK paid over twice that of France and Italy.
Under the agreement reached in December 2005, the UK agreed to increase its contribution to the EU budget for 2007-13 to ensure we paid our fair share towards the costs of EU enlargement, in return for all the benefits it will bring to the UK in terms of a larger single market and a more stable and prosperous neighbourhood. It was agreed that the maximum cost to the UK of this measure over 2007-2013 would be €10.5bn, or £7bn. The UK rebate remains and is likely to be larger in 2007-2013 than in the previous financial period.
This will mean that the UK will, for the first time, be paying roughly the same as France and Italy. In 2005, the UK's net contribution to the EU was £3.6bn - about £60 a head.
Full details of the UK’s contribution to the EU budget are contained in the European Community Finances White Paper, which was published in 2006, and is available here:
European Community Finances: Statement on the 2006 EC Budget and measures to counter fraud and financial mismanagement (PDF, 661 KB)
The agreement in December also made clear that all aspects of the EU budget – including the CAP and the abatement – should be examined in 2008-2009, and that this process could lead to fundamental reform of the EU budget. As the Prime Minister said in his statement to Parliament on the Budget Deal in December 2005, this will allow the EU to determine its budget based on the fundamental questions, such as: “what is the purpose of the EU budget”, and “what should the EU spend its money on?”
The current budget is not fit for purpose for Europe in the 21st century. The Budget Review is the opportunity for a new approach designed to meet today’s challenges. The aim is to achieve a modern, outward-looking EU, enabling Member States to respond to the challenges of globalisation and deliver opportunity, fairness and prosperity for all.