The UK 'rebate' on the EU budget: An explanation of the abatement and other correction mechanisms

Briefing 18-02-2016

The UK 'abatement', 'rebate' or 'correction' is the ad hoc mechanism that is applied to lower the UK's contribution to the EU budget, by reimbursing 66% of the country's budgetary imbalance (the difference between payments and receipts). In 2014, the rebate amounted to almost €6.1 billion, reducing the UK's national contribution by 35% – to €11.34 billion – leaving it the fourth largest national contribution. All Member States but the UK cover the costs of the rebate. Introduced in 1985, it has remained unchanged in its basic concept, and is best understood with reference to some features of the UK economy and of the common budget at that time. Each year, the amount of the rebate is determined by a complex calculation, linked to several variables and which has evolved over time to take into account developments in the EU and its financing system. Included in the Own Resources Decision, modification of which requires unanimity of the Member States, the rebate is de facto a permanent mechanism. Following the creation of the rebate, other Member States argued that their EU budgetary burden was excessive, asking for reductions in their contributions, including to their financing of the UK rebate itself. This has led to a complex system of ad hoc permanent and temporary corrections. For 2014-2020, Member States other than the UK benefiting from explicit corrections on the revenue side of the EU budget are: Austria, Denmark, Germany, the Netherlands and Sweden. Correction mechanisms have attracted a number of criticisms, not least that they make the finances of the EU more complex, less transparent, less fair and harder to reform. Past proposals to replace the existing ad hoc mechanisms with a single new one, open to any Member State meeting defined conditions in terms of budgetary imbalances, have not been successful.