The UK joined the EU, or European Economic Community as it then was, on January 1, 1973. More than 45 years later, the UK is attempting to leave the bloc after a referendum saw the majority of the population voting against its membership. A huge part of why Britons chose to leave the EU was due to the vast amount of money the UK pays into the institution every year.
The UK’s net contribution to the 2019 EU budget has been estimated by the Office for Budget Responsibility (OBR) to be about £7.1bn (€7.95bn), and the UK’s public finances watchdog has estimated a net contribution of £9.11bn (€10.19bn) for 2020.
The bloc agrees on a long-term spending plan every seven years, where all EU leaders have to agree on it unanimously and the last plan was agreed in 2013, for the period 2014-20.
The UK is a net contributor to the EU budget, which means it contributes more to the EU budget than it receives back from it.
In 2017, the UK was the second largest contributor with £6.55bn (€7.43bn), just behind Germany at £11.2bn (€12.8bn).
But because the UK is a net contributor the EU budget, a rebate was introduced in 1985.
According to a House of Commons document, titled the UK’s contribution to the EU budget, the UK received relatively little from the EU budget when the rebate was introduced in 1985. It had a small agricultural sector, but most EU spending went on agriculture.
At the same time, the UK made relatively large contributions to the budget, despite being among the less well-off member states at the time.
Francesco Moscone, economics professor at Brunel University London explains why the UK made high contributions to the EU budget, despite benefitting little from the agreement.
He said: “To answer to this question we need to understand the change in 1980 in the financing mechanism of EU (then the European Community) and its priorities in the allocation of resources across sectors.
“Back then, member states were asked, in addition to common custom duties and agricultural and sugar levies, to provide a fraction of their annual Value Added Tax receipts (VAT).
“This is the reason of why the UK soon became a large contributor to the EU budget.
“At the same time, almost two thirds of the EU budget was spent on the Common Agricultural Policy (CAP), penalising the UK whose agricultural economy has always been very different when compared to other member states.
“Put it differently, the UK benefited little from the resources distributed by the CAP.
“Because of this, the UK soon became a large net contributor to the EU budget despite being among the less-off member states.”
Mr Moscone continued: “In order to correct the apparent imbalance, namely the differences between payments and receipts, the UK entered in 1984 a negotiation with the other EU members that lead in 1985 to the UK rebate (or correction); namely an ad hoc mechanism that is applied to lower the UK’s contribution to the EU budget.”
But despite the UK receiving little back from the EU at the time, Mr Moscone believes the UK would have been fine without the rebate as well.
He said: “The UK’s long-run economic growth mostly depends on other factors: levels of infrastructure, the productivity of workers, development of technology, the strength of labour market.
“To be clear, we are talking about 1 percent of GDP.
“Furthermore, since 1973 the UK has always paid less than Germany (which is a bigger economy) and since the rebate was introduced has also consistently paid less than France (a similar sized economy).”