Treasury Committee publishes Report on the UK’s EU Budget Contributions

• Report: The UK's EU Budget Contributions (PDF 238 KB)
• Inquiry Page: The UK's EU Budget Contributions

Andrew Tyrie's comments

“The suggestion that the £1.7 billion bill demanded by the European Union was halved is not supported by published information.

“The terms of the UK’s rebate calculation are set out in EU law. It should, therefore, have been clear that the rebate would apply.

“The Government got a good deal for the UK by securing an interest-free delay to the EU bill.  But by overstating its success on the rebate, it distracted attention from this achievement

Conclusions

Emerging from the ECOFIN summit of 7 November 2014, the Chancellor claimed to have “halved the bill” of £1.7 billion demanded by the EU. He later described this as the result of “hard-fought negotiation” with the Commission to ensure that the consequential change to the UK’s rebate would apply. (paragraph 19)

The calculation of the rebate, and the circumstances in which it applies, are embedded in EU law. This is set out in detail in Council Decision 2007/436/EC and the supporting Council document on the UK correction. These documents establish the precise method for calculating the rebate. They also provide for past rebates to be adjusted in response to GNI data revisions, such as those which prompted the rebate’s revaluation in this case. It does not appear to the Committee that these documents left a great deal of room for uncertainty. (paragraph 20)

The Chancellor and Mark Bowman, HM Treasury’s Director General for International and EU, both insisted to the Committee that there was “real doubt” and “absolutely no clarity” that the rebate would apply. They claimed variously that there was uncertainty for three reasons: the revisions were of an unprecedented scale; the revisions arose from an “incredibly complex” part of the rebate calculation; and the Commission did not mention the rebate when it initially presented the £1.7 billion bill. (paragraph 21)

While the Committee recognises the achievement of extending payment terms and of the removal of interest charges, it finds each of the arguments in the paragraph above unpersuasive. There is no limit to the scale of the rebate in either the Council Decision or the supporting Council document. The complexity of the rebate calculation does not make it less certain, less clear or ambiguous. On the contrary, the complex and detailed published explanation of the method of calculation has the effect of reducing ambiguity and uncertainty. In fact, the question of whether the Commission "mentioned" the rebate when the increased bill was first presented has no bearing on whether, under EU legislation, the rebate was bound to apply or not. It is surprising that HMT officials had not realised this. (paragraph 22)

There is one source of potential doubt, to which Mr Bowman alluded. He told the Committee that the application of the rebate was uncertain because there had never been a set of revisions dating back so many years. Though neither Mr Bowman nor the Chancellor made this clear in evidence, this might have referred to the supporting Council document that appears only to require the rebate to be adjusted as far back as four years. If, however, this was a point of uncertainty, it would only apply to budget contributions prior to 2010. The rebate of later years should not have been in doubt, and so the specific claim to have halved the bill through negotiation is difficult to support. Furthermore, if this was a point of uncertainty, then the Treasury could have clarified it long before, since it knew in May 2014 that revisions to GNI data could lead to revised budget contributions dating back to 1995. It could also have secured a permanent rule change to address the uncertainty, since any ambiguity in the rebate calculation exposes the UK to significant budgetary risk. No breakdown of the £850 million rebate adjustment has been published. It therefore remains unclear whether this point—that is, whether rebates prior to 2010 were revalued in response to the GNI revisions—was resolved in the Treasury’s favour. (paragraph 23)

On the basis of the evidence the Committee has seen, it should have been unambiguously clear to the Treasury, well in advance of ECOFIN on 7 November 2014, that the UK was entitled to a rebate on any additional budget contributions that could arise from the GNI revisions. Again on the basis of the evidence the Committee has seen—and setting aside any possible uncertainty about the four-year time limit for adjustments described above—the size of this rebate would have been automatically determined by the method laid out in the Council documents once the revised GNI and budget contribution figures were finalised on 17 October. If there were any uncertainty about the method for calculating the rebate set out in the Council documents, then it is unclear why the Government did not explain exactly what this uncertainty was and how it had arisen. Even if there were any uncertainty about whether the method applied in this particular case, the detailed framework to address it was available from the relevant documents. We note that the Commission did not at any stage suggest to HM Treasury that the rebate would not apply. (paragraph 24)

At the ECOFIN summit, it was agreed that, on this occasion and in future, Member States could delay the payment of particularly large bills resulting from GNI revisions and other adjustments. This delay of the UK’s bill, part of a permanent change to the EU’s financing rules, was a considerable achievement. By claiming a victory for having “halved the bill”—a claim not supported by the facts—the Chancellor distracted attention from that achievement. Claim and counter-claim are likely to be commonplace in the UK’s debates on EU matters. The public should be put in a position to reach a view based on the facts. (paragraph 25)