3. EU budget and UK contribution

• UK net contribution was about 0.4% of GDP a year: less than 1.2% of public expenditure in 2019
• For 2019, UK contribution was:
  • £14.4 billion gross after rebate;
  • £7.9 billion after public and private sector receipts
  • £152 million a week (or 32p per person per day)
• Economic benefits of EU membership added an estimated 4% to UK GDP (IFS)
  • Benefits to UK were about 10x UK’s net contribution to EU
• In 2019, GDP was £2.3 trillion and EU membership was worth:
  • ~£90 billion
  • ~£1,700 million a week
  • ~£450 per person for the year
• UK financial settlement (2020-2065) was estimated at £30.2 billion in March 2024
  • £23.8 billion 80% had been paid by December 2023
  • Balance outstanding at March 2024 – £6.4 billion
• Separately, UK pays to participate in any EU programmes that it joins post Brexit (e.g. Horizon)

Click here for summary of Brexit FactBase.

EU plan and budget

Multi-annual financial plan

The EU plans its spending in seven-year financial plans in a Multi-annual Financial Framework. The relevant Multi-annual Financial Plan (MFP) ran from 2014 to 2020. Annually, the European Parliament and the Council approve each year’s budget, within the MFP, separately in advance.

The 2014-20 MFP had 11 principal goals:

1. Strengthening research, technological development and innovation
2. Enhancing access to, and use and quality of, information and communication technologies
3. Enhancing the competitiveness of Small and Medium-sized Enterprises (SMEs)
4. Supporting the shift towards a low-carbon economy
5. Promoting climate change adaptation, risk prevention and management
6. Promoting sustainable transport and improving network infrastructures
7. Preserving and protecting the environment and promoting resource efficiency
8. Promoting sustainable and quality employment and supporting labour mobility
9. Promoting social inclusion, combating poverty and any discrimination
10. Investing in education, training and lifelong learning
11. Improving the efficiency of public administration

Sources: European Commission, Priorities for 2014-20 

EU budget

The EU annual budget is always balanced, so there is no deficit or debt. It consists mostly (>90%) of payments for the current year plus commitments in future years (<10%).

Country contributions to the budget vary principally according to country Gross Domestic Product. They average about 1% of GDP (the EU uses a similar measure, called Gross National Income – GNI). The GNI contribution is the major item but country contributions also include a VAT contribution, tariffs and levies. (See NAO diagram below for more details).

The 2018 budget was €160bn, consisting of:

• €132bn (83%) spent in EU countries, benefitting citizens directly, on the EU’s main objectives of sustainable growth and smart and inclusive growth:
  • €59bn (37%) on sustainable growth;
  • €56bn (35%) on economic, social and territorial cohesion
  • €22bn (14%) on competitiveness for growth and jobs
• €10bn (6.3%) on Global Europe;
• €10bn (6.3%) on administration; and
• €3bn (1.9%) on security and citizenship.

The EU budget for 2018 of €160bn averaged 85 cents a day per citizen (EU population 513 million) or €312 a year per citizen.
(The 2017 budget was €158bn and spent in similar proportions to 2018).

Source: European Commission, EU annual budget lifecycle – figures 

EU28 contributions compared

Figure 3.2 shows member state shares of the contributions to the EU budget. Of these, the top four contributors are Germany (19%), France (16.6%), UK (13.5%) and Italy (12.5%) who account for over 61% of gross contributions.

The chart shows that the UK contributed 13.45% of the EU budget in 2016. However, when pubic sector receipts from the EU are deducted, the UK’s net contribution was about 10% in round figures.

On a gross and net basis, the UK was the third largest contributor.

Source: Statista and House of Commons Library, A Guide to the EU Budget, January 2018

Budget accountability and control

This diagram at Figure 3.3, which is from the excellent NAO briefing on the EU-UK finances, shows the steps in granting funds, spending, reporting and auditing.

There is more detail on the role of the European Court of Auditors and its regular sign-off of the EU’s accounts in the section on ‘What is the EU?’.

Figure 3.3: EU budget accountability cycle

Source: National Audit Office, Briefing on EU-UK finances, December 2016

UK contribution and benefits

Contribution for 2019

HM Treasury recorded the UK gross contribution to the EU budget in 2019 as £18.9 billion (Tables 3.1 and 3.2). After rebate, this reduces to £14.4 billion (£277 million/week), which is the amount sent to the EU (including duties UK collects on behalf of EU). Against this, the UK benefited from receipts from the EU of £5.0 billion (Table 3.1.).

From 2021, the UK will make contributions to the EU for its ongoing participation in EU programmes such as Horizon, where these are agreed. The EU-UK Trade and Cooperation Agreement makes provision for participation.

The UK net contribution in 2019 was £9.4 billion, taking account of £5.0 billion in EU payments to the UK public sector (the majority represents receipts under the Common Agricultural Policy).

In addition, UK organisations received funds secured through competitions (for example, for research in UK universities). The House of Commons Library estimates that between 2014 and 2018 these additional receipts were between £1.0 billion and £2.0 billion each year.

Assuming estimated receipts of £1.5 billion for 2019, resulted in a UK net contribution of £7.9 billion or £152 million per week or 33p per day per person (UK population of 66.9 million in 2019 – estimated by ONS – and 66.4 million in 2018).

Leaving the EU theoretically improves the UK’s public finances by saving the UK contribution, but this is just part of the story. All reputable economists agree that Brexit reduces UK national income by much more than the contribution. Scroll down for the economic benefits of EU membership. Also, see section on impact assessment.

Source: House of Commons Library, The UK’s contribution to the EU budget, 4 January 2021

Additional details

Table 3.2 shows additional detail about the components of UK contributions and public sector receipts 2016 – 2020 shown in Table 3.1. In addition, the UK received funds through competitions for funds (which are shown in Table 3.1, but not Table 3.2).

Note that the UK contribution included the UK’s share of the EU’s international aid budget for which the UK’s share was about £1 billion in 2015/16. This counted towards the UK’s overseas aid target of 0.7% of GDP. Assuming this target continues, after leaving the EU, the UK still needs to spend the £1 billion on aid to meet the target. Assuming an aid figure of £1 billion for 2019 meant that the UK could only have ‘saved’ £6.9 billion a year (£133 million/week), even less than the net figure of  £7.9 billion in Table 3.1.

Table 3.2: UK contributions and public sector receipts, 2016 to 2020 (£ million)

Source: House of Commons Library, The UK’s contribution to the EU budget, 14 June 2022

Contribution and public expenditure

The UK’s net public sector contribution to the EU of £9.4 billion in 2019 represented  less than 1.2% of UK public expenditure of £802 billion for 2018 -19 (Figure 3.4). This meant that nearly 99% of UK public expenditure was under direct UK government control.

Figure 3.4: UK public sector spending 2018 -19 (£bn)

Source: HMT, Public Spending Statistics, July 2019

Economic benefits of EU membership

In August 2016, the Institute for Fiscal Studies (IFS) reviewed several reputable economic studies about the costs and benefits of different options for UK’s relationship with the EU. The IFS concluded that membership of the Single Market was worth an additional 4% of UK GDP over the long run.

To give an idea of scale, 4% of GDP of £2,234 billion in 2019 (Figure 3.5), was worth about £86 billion (4/104 x £2,234).

This was a benefit to GDP of £1.65 billion a week, or nearly eleven times the weekly net contribution of £152 million (Table 3.1).

(The estimated benefit in 2021 and 2022 would have been less than 4% shown here, due to Brexit.)

The economic benefits of EU membership come mainly from:

• Near-frictionless trade within the EU;
• EU trade agreements with other countries;
• Freedom of movement, which benefits the UK workforce and UK citizens working, studying or retiring in the EU;
• Attractiveness of UK as a destination for FDI to access the EU market;
• Productivity gains from access to a huge market with common standards.

Figure 3.5: Annual GDP and estimated benefit of EU membership

Benefits to public finances

Public finances are sensitive to changes in GDP and fiscal policy. In its projections, HM Treasury typically assumes that 35% – 37% of GDP flows through to public finances. Applying these percentages to an additional £86 billion of GDP in 2019 indicates that:

EU membership benefited UK public finances by around £30bn to £32bn in 2019, or:

• 3.2 to 3.4 times the UK’s net contribution of £9.4 billion
• £580 million – £620 million/week
• £1.24 – £1.32 per person per day (population of 66.9 million)
• £450 – £480 for the year for every man, woman and child

Sources:
Institute for Fiscal Studies, Brexit and the UK’s public finances, May 2016
Institute for Fiscal Studies, The EU Single Market: the value of membership versus access to the UK, August 2016
ONS, Quarterly National Accounts data, March 2022
ONS, Gross Domestic Product at market prices, August 2023

Financial settlement

Principles

The UK committed to honouring its share of gross EU liabilities accrued while Britain was a member state until 31 January 2020. One important objective of the first phase of the Brexit negotiations was to determine how to calculate the financial settlement.

As the Attorney-General stated in Parliament on 15 January 2019, the UK had an international legal obligation to pay what it owed to the EU. Indeed, the Withdrawal Agreement (which covers the financial settlement) is legally binding.

The UK and the EU agreed to a system to pay in instalments as specific liabilities fall due. This means that the final figure for the so-called “Brexit bill” will not be known until the final liabilities fall due in 2065.

Calculation

The UK’s exit payments are spread over several years and most of the liability has already been paid. £23.8 billion was paid by December 2023 (just under 80% of the latest total Treasury estimate). This left £6.4 billion outstanding. Relatively small annual payments will continue until 2065.

The Treasury’s latest estimate is summarised in Table 3.3. The main component is the UK’s share of unpaid spending commitments in the 2014-20 financial plan at the end of the transition period (31 December 2020). In addition, there are other obligations such as pensions and contingent liabilities related to decisions taken while the UK was a member, such as guarantees for outstanding loans from the European Investment Bank (‘EIB’).

In March 2024, the Treasury estimated that the net cost of the settlement was around £30 billion (see below). This was lower than previous estimates:

• In 2017, using the UK’s share of EU contributions of about 13%, this initially implied a gross liability of about €100 billion (see FT article), or net €48 billion to €54 billion after deducting:
  • UK share of EU assets of €17 billion to €23 billion
  • EU spending commitments to the UK to 2020 of €29 billion
• In 2018, the government had estimated that the net financial settlement would be £35 billion – £39 billion.
• By 31 December 2020, the outstanding financial settlement was estimated to be ~£34 billion.

The National Audit Office (NAO) had warned that the outcome was uncertain and the settlement could be higher.

Sources:
House of Commons Library, Brexit: the financial settlement – a summary, July 2024
Financial Times, UK bows to EU demands with breakthrough offer on Brexit bill, 29 November 2017
House of Commons Library, Brexit: the financial settlement in detail, December 2020
National Audit Office, Exiting the EU: the Financial settlement, April 2018
Office of Budget Responsibility, Fiscal risks report, July 2019, p166
Office of Budget Reponsibility, Economic and Fiscal Outlook, March 2021

Last updated on 27th August 2024 by Richard Barfield