A leaked European Commission document shows adjusted contributions EU member states will be asked to make to the EU budget over the next few weeks. In the UK’s case, the figure amounts to more than €2bn, adding about a fifth to its existing contribution - why is this?

A leaked European Commission document published by the Financial Times (paywall) shows adjusted contributions EU member states will reportedly be asked to make to the EU budget over the next few weeks.

These are the adjustments by country, to be added (or subtracted) from existing contributions:

The total net effect of the adjustments is €420 million.

In the UK’s case the hit is particularly significant as it adds about a fifth to its existing £8.6bn net contribution.

How are these numbers calculated?

Simplifying, the key factors in the formula determining a country’s contribution to the European Union is calculated based on each country’s VAT receipts, gross national income (GNI) balances and customs duties collected on behalf of the EU (known as “Traditional Own Resources”) - all, relative to other member states.

Revisions to contributions happen every year, and are usually on an annual basis. A review covers a single year, if GNI grew more than forecast, a member state must pay in a bit more, if the opposite occurs, it gets money back.

Figures are furthermore adjusted by amending budget items (for example, if more revenue than planned comes in - say from fines to multinational companies the EU has received this year - contributions are cut). It’s worth keeping in mind that the current figures may well be reduced as further amending budget components are added (i.e. the amount recalculated for Britain would be lower). At the same time, reimbursements for any further amendments made after November 15 would be paid back next year, so after the current payments are due. As things stand, these are the figures from the document obtained by the FT:

This year was different as the GNI and VAT revision looks back at almost 20 years of data.



Why is this?

Recently EU member states revised their economic figures for the last 15 years or so. These revisions, which in the UK were carried out by the Office for National Statistics (ONS), were based on statistical improvements, changes to how the contribution of various sectors - such as charities - are recorded, and by including in accounts sides of the economy that previously had been excluded from calculations. In the UK’s case this meant that the ONS found that the economy was bigger and growing faster than thought. In 2013 alone, GNI was revised higher to £74.2bn (an increase of 4.5%), the new measurement of “non-profit serving institutions serving households” added £26.3bn to GNI (paywall).

As a further example, these are the revisions on 2010 GDP in the eurozone:

Alberto Nardelli (@AlbertoNardelli) Impact of eurozone 2010 GDP revisions by country: pic.twitter.com/obLUQpKjGc

The figures released today are based on these numbers - they are calculated on the basis of a review of the economic performance and pace of growth of member states since 1995 - more accurate methods of calculating economic performance were introduced, and the readjusted calculations have been made on the basis of these.

In fact, according to the European Commission, the GNI recalculations are based on figures since 2002 for all but one member state (whose recalculation is for figures since 1995).



One could even argue that countries whose growth has been significantly revised upwards had previously been underpaying when it came to EU contributions. Strictly speaking, the recalculation isn’t due to better performance, but to past mismeasurement of GNI.

Did the member states know and agree to this?

Yes.

Member states are in agreement with how contributions are calculated using GNI. And, critically for this specific case argued in favour of the statistical revisions to how economic performance is calculated - for obvious reasons - these, it is worth remembering, have allowed many countries to show better than previously thought economic growth and, in some cases, a smaller debt relative to GDP.

How the bills will be paid in December remains unknown, but despite this morning’s surprised faces and bullish remarks, it is highly unlikely that member states did not know, or did not anticipate, these figures. The calculations are even based on data provided by member state governments themselves, which Eurostat, the EU’s statistical institution, then verifies.

It is likely that independently of instalments and cosmetics, Britain (and others) will need to to pay their amounts (short of choosing to leave the EU, or convincing France, Germany and others to forego their payments).

The communications, timing and politics of a billion euro bill to cover in a few weeks is of course something else, but these are the numbers.