European Union (Finance) Bill

Explanatory Notes

Financial implications of the Bill

18 The actual financial cost to the UK of the 2014 to 2020 Multiannual Financial Framework (MFF) is contingent on a number of factors, including the size of each year's EU budget, distribution of spending across programmes and Member States, implementation, miscellaneous revenues of the EU (e.g. fines and penalties imposed by the Commission on private companies and Member States) and, most importantly, economic factors such as the relative growth performance and exchange rates. These factors determine the level of EU spend, relative economic size of Member States (which in turn determine how the financial burdens are divided), and the value of the UK's abatement.

19 At the time of the December 2011 Explanatory Memorandum on the amended Commission proposal for own resources legislation, the UK's contribution to the 2014 to 2020 MFF was provisionally estimated to be around 14.5% pre-abatement and 11.4% post-abatement.

20 The proportion of Traditional Own Resources (TOR) that Member States keep to cover their collection costs is reduced from 25% of the amount collected to 20%. While this will affect the UK's in-year contributions, it will not affect the ultimate cost of the 2014 to 2020 MFF to the UK when abatement is taken into consideration. This is because, through the abatement mechanism, the UK does not derive any financial benefits or incur additional costs due to any changes to the financing system of the EU since 1984.

21 This "not a penny more, not a penny less" principle ensures that the ultimate cost of the EU budget to the UK today is the same as it would have been under the system that existed in 1984. Various changes to the EU financing system since then are reflected in adjustments to the calculation of the UK abatement. For example, changes in the TOR collections costs since 1984 are negated by the "TOR windfall gains" adjustments; and the effect of the introduction of the Fourth Resource (GNI-based contributions) on the cost to the UK are corrected through the "UK advantage" adjustment. This approach and the underlying principle mean that the UK will not be affected by the change in TOR collection costs when the UK abatement is taken into account.

22 The UK contributes to the annual GNI reductions (lump sum corrections) for other Member States. This means that the UK will contribute to the two new lump sum corrections (for Denmark and Austria) which average approximately €138.8 million per year for the two Member States over the 2014 to 2020 period. On the basis of the estimates for the UK's financing shares in paragraph 19, these would cost the UK approximately €20.1 million per year.

Prepared 8th June 2015