Is the UK rebate still under threat?

There’s been a lot happening on the EU budget front in the last couple of days – the 2014 draft budget was proposed yesterday and this morning a deal was finally struck between the European Parliament’s negotiating team and the Irish Presidency on the EU’s long term budget (more on that later).

Meanwhile, David Cameron has arrived in Brussels for the EU summit pledging to protect the UK rebate, with PA reporting that France is allegedly pushing for a change in the way the rebate is calculated so that it does not cover the rural development part of the CAP, a move which could reduce it by around 10%. 

Cameron said that “It is absolutely essential that we stick to the deal we reached in February and that we protect the British rebate, and I will make sure that we do that”, adding that he wants it “locked down”.

For context – EU leaders agreed in 2007 that the UK “shall participate fully in the financing of the costs of enlargement, except for agricultural direct payments and market-related expenditure, and that part of rural development expenditure.”

This issue first came up in November when Herman Van Rompuy proposed reducing the UK rebate in this way, and David Cameron rejected it out of hand. We flagged this up here and calculated that it would reduce the UK rebate by €3.5bn (11%) over the seven year budget period (Although it should be noted the rebate is likely to fall anyway as a result of greater expenditure in the new member states). The conclusions of the February summit, where the deal was finally struck, clearly state that “the existing correction mechanism for the United Kingdom will continue to apply”.

Given that the rebate is embedded within the EU’s so called “own resources” regulation, which is decided under unanimity and therefore protected by UK veto, it would appear France's demands could only be met by unpicking the entire budget deal agreed in February, for which there is no appetite among other countries. It is therefore difficult to see how this is a credible threat, although it does make for good publicity for both Cameron and Hollande.