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Britain’s £1.7bn EU surcharge - Q&A Britain’s £1.7bn EU surcharge - Q&A
(about 1 hour later)
Why has Britain been hit by a £1.7bn EU surcharge?Why has Britain been hit by a £1.7bn EU surcharge?
The European Union budget is partly financed on the basis of the gross national income (GNI) figures of member states. On 17 October the commission presented a €2.1bn (£1.7bn) surcharge bill to Britain based on the UK’s revised GNI figures, which showed the British economy had been performing better than previously reported. The size of revisions – part of an annual statistical exercise handled by civil servants, not politicians – was unusually large as GNI was adjusted going back a decade or more.The European Union budget is partly financed on the basis of the gross national income (GNI) figures of member states. On 17 October the commission presented a €2.1bn (£1.7bn) surcharge bill to Britain based on the UK’s revised GNI figures, which showed the British economy had been performing better than previously reported. The size of revisions – part of an annual statistical exercise handled by civil servants, not politicians – was unusually large as GNI was adjusted going back a decade or more.
Germany and France were big beneficiaries – so much so that France was able to make a significant reduction in its expected 2015 budget deficit. But Italy, the Netherlands and even indebted Greece were asked to pay much more for their share of EU costs. Germany and France were big beneficiaries of the exercise – so much so that France was able to make a significant reduction in its expected 2015 budget deficit. But Italy, the Netherlands and even indebted Greece were asked to pay much more for their share of EU costs.
To put the £1.7bn figure in perspective, it is a one-off payment which accounts for less than 0.1% of UK gross national income. Since it is a top-up to UK contributions covering 11 years, Britain is being asked to pay an extra £150m a year over the period. A sum like this would barely deserve a footnote in the UK’s annual accounts, as noted by the Financial Times. However, the row over the surcharge has eclipsed the fact that the UK’s net payments to Brussels have risen from £2.7bn in 2008 to £11.3bn in 2013. This was due to the economy doing better than other EU member states and because Britain’s rebate was lower than it had been under the last government.To put the £1.7bn figure in perspective, it is a one-off payment which accounts for less than 0.1% of UK gross national income. Since it is a top-up to UK contributions covering 11 years, Britain is being asked to pay an extra £150m a year over the period. A sum like this would barely deserve a footnote in the UK’s annual accounts, as noted by the Financial Times. However, the row over the surcharge has eclipsed the fact that the UK’s net payments to Brussels have risen from £2.7bn in 2008 to £11.3bn in 2013. This was due to the economy doing better than other EU member states and because Britain’s rebate was lower than it had been under the last government.
How will the surcharge dispute be resolved?How will the surcharge dispute be resolved?
The chancellor, George Osborne, will meet finance ministers from the other 27 EU countries in Brussels on Friday to begin a review of the bills that have been sent to the UK and others.The chancellor, George Osborne, will meet finance ministers from the other 27 EU countries in Brussels on Friday to begin a review of the bills that have been sent to the UK and others.
The prime minister, David Cameron, has insisted the UK will not pay “anything like” the €2.1bn (£1.7bn) surcharge the European commission has asked to be paid by 1 December. Lord Hill, Britain’s European commissioner, has called for calm, saying what seemed to be a technical issue had become highly political. “The sensible thing now is to try to calm the situation down and to look at the facts and to look at a practical solution that various member states face,” he said. The prime minister, David Cameron, has insisted the UK will not pay “anything like” the €2.1bn surcharge the European commission has asked to be paid by 1 December. Lord Hill, Britain’s European commissioner, has called for calm, saying what seemed to be a technical issue had become highly political. “The sensible thing now is to try to calm the situation down and to look at the facts and to look at a practical solution that various member states face,” he said.
What are the chances of that happening?What are the chances of that happening?
Relations between Cameron and Jean-Claude Juncker, the commission president, are already strained. Britain tried to block Juncker’s appointment and he told the European parliament on Tuesday that he did not like Cameron’s furious outburst over the budget bill at the end of an EU summit last month.Relations between Cameron and Jean-Claude Juncker, the commission president, are already strained. Britain tried to block Juncker’s appointment and he told the European parliament on Tuesday that he did not like Cameron’s furious outburst over the budget bill at the end of an EU summit last month.
Cameron is under pressure from his backbenchers to take a hard line against the EU ahead of the Rochester and Strood byelection later this month, where Ukip is mounting a strong challenge. However, officials believe a compromise is possible whereby the commission grants Britain permission to pay instalments at monthly, quarterly or some other rate over the coming months. London would then avoid the interest charges that would accrue daily from 1 December, at an initial annual rate of 2.5%, if it failed to pay in full. Cameron is under pressure from his backbenchers to take a hard line against the EU ahead of the Rochester and Strood byelection this month, where Ukip is mounting a strong challenge. However, officials believe a compromise is possible whereby the commission grants Britain permission to pay instalments at monthly, quarterly or some other rate over the coming months. London would then avoid the interest charges that would accrue daily from 1 December, at an initial annual rate of 2.5%, if it failed to pay in full.
Does any one else support this option?Does any one else support this option?
France, Italy and Germany are reportedly open to the idea. This would give Britain a chance to get the regulation adjusted because EU votes are based on a majority. If a deal is reached to pay by instalments, the deadline for the first payment could be pushed back to January, but that is still open to negotiation and must be agreed by the European parliament.France, Italy and Germany are reportedly open to the idea. This would give Britain a chance to get the regulation adjusted because EU votes are based on a majority. If a deal is reached to pay by instalments, the deadline for the first payment could be pushed back to January, but that is still open to negotiation and must be agreed by the European parliament.
Officials say the decision would not be a concession to Britain but rather a mechanism to allow budget payments in instalments for every one of the EU’s 28 countries any time a statistical review triggers an exceptional charge.Officials say the decision would not be a concession to Britain but rather a mechanism to allow budget payments in instalments for every one of the EU’s 28 countries any time a statistical review triggers an exceptional charge.
How much interest would Britain have to pay if no deal is reached?How much interest would Britain have to pay if no deal is reached?
According to the Open Europe blog, if Britain holds out for a month it will owe the EU £3.5m in interest on top of the original £1.7bn surcharge – which takes in the rebate negotiated under Margaret Thatcher and amended under Tony Blair. After six months, UK taxpayers will be looking at an additional £39.1m, while failure to pay for a whole year will increase the bill to £89m. The annual interest rate will then stand at 5.25%. If the debt is still outstanding after 10 years, the UK will owe £5.5bn of interest on a £1.7bn debt, more than 300% interest because under EU rules, the penal rate increases.According to the Open Europe blog, if Britain holds out for a month it will owe the EU £3.5m in interest on top of the original £1.7bn surcharge – which takes in the rebate negotiated under Margaret Thatcher and amended under Tony Blair. After six months, UK taxpayers will be looking at an additional £39.1m, while failure to pay for a whole year will increase the bill to £89m. The annual interest rate will then stand at 5.25%. If the debt is still outstanding after 10 years, the UK will owe £5.5bn of interest on a £1.7bn debt, more than 300% interest because under EU rules, the penal rate increases.