Dáil Éireann díospóireacht -
Tuesday, 18 Nov 2003

Vol. 574 No. 4

Adjournment Debate. EU Presidency.

Mr. Andrews

I thank the Ceann Comhairle for giving me the opportunity to raise this important issue. There was a great deal of political controversy in the early 1980s about the British Government's view that it was making an excessive net contribution to the European Union. The basis of the British case was that its VAT base was too high compared with that of other member states, it was a below average beneficiary of the Common Agricultural Policy and was, therefore, making an overpayment.

To meet the British concern the Fontainebleau European Council of June 1984 agreed the UK rebate. It is a complicated formula which consists of paying back to the UK about two thirds of the difference between what it contributes and what it receives from EU expenditure. In effect, Margaret Thatcher handbagged the other member states with the threat of blocking expansion of the EU.

For many years the UK argued that the rebate could not be renegotiated while CAP reform was not seriously addressed. Pressure is now mounting among EU member states to end the rebate. The German EU Commissioner for Enlargement, Mr. Günter Verheugen, speaking at the German SPD party congress last weekend, said that continuation of the rebate is not feasible. He based his arguments, among other things, on the pressure that is being unfairly applied to the poorer states to pay these moneys. It is clearly unfair that they should have to pay the wealthier country.

Officials from the Department of Finance told the European affairs committee last week that the sum has not been significantly changed since 1984 and that the basis for its calculation has not significantly changed. More surprisingly, they agreed that there is no scientific definition of an overpayment and that it is based on a political calculation. Next year the UK rebate will cost the Irish taxpayer €98 million.

The current arrangements run out in 2006 but there is an opportunity for Ireland to take a lead on this issue ahead of enlargement. It is a patently unfair system. I reject the view that Ireland should be silent out of gratitude for the manner in which the EU has funded Irish development in the past few years. Ireland has sacrificed a great deal during its membership, particularly fishery rights. We approached the issue of CAP reform maturely and, in that context, the days of the rebate are numbered. In light of the new financial perspective in the EU, the Growth and Stability Pact, the renegotiation of CAP and the enlargement of the EU, it is time the British EU rebate was reconsidered. It is a legacy of history and has little relevance today. It is a drain on the resources of member states for the benefit of one country.

The officials from the Department of Finance who spoke to the European affairs committee could not fully explain the basis of the calculation of Ireland's contribution. It is supposed to be based on our gross national income but it is not made clear whether this refers to GNP, GDP or something different. If it is GDP, it is clear that Ireland's contribution has increased out of proportion in recent years on the basis of repatriated profits. This is a factor that uniquely affects Ireland. Nearly €100 million could be saved by the Irish Exchequer if the rebate system to the UK is abolished. This money could be used to finance vital services and projects. I call on the Minister to acknowledge that this payment is out of date and out of kilter with EU reforms.

Minister for Finance (Mr. McCreevy)

It might be useful to give the historical background to this issue. The origins of the UK rebate essentially lie in two factors that prevailed at the time of the UK's accession to the European Community. The first was the relatively small size of the UK's agricultural sector which, given the predominance of agricultural spending in the Community budget at that time, meant that the UK received a relatively small share of total Community spending. The second factor was that because of the high level of farm imports from outside the Community to the UK, the associated transfer of agricultural levies to the Community budget and the UK's relatively large VAT base, the UK was making a relatively large contribution to the financing of the Community budget. These factors combined to produce a situation where the UK, despite the fact that its national income per head was below the Community average, was a major net contributor to the Community budget.

This was a matter of serious political controversy almost from the moment of the UK's accession to what was then the EEC. From 1975, a series of correcting mechanisms were introduced in an attempt to resolve the controversy. The first mechanism was agreed by the European Council in Dublin in March 1975. However, it was never triggered and nothing was paid to the UK under it. A second correction mechanism was agreed at the Dublin European Council of November 1979. This provided for compensation for the UK in the form of specific expenditure measures favourable to the UK. However, this, too, failed to resolve the concerns of the UK.

The third of these correcting mechanisms was agreed at the Fontainebleau European Council in 1984 and the basic principles of the mechanism agreed at Fontainebleau have operated since then. Subsequent agreements about EU financing have incorporated and reflected the Fontainebleau agreement. The mechanism for calculating the rebate is extremely complex. The formula takes account of the UK's share of the EU's uncapped VAT base, the UK's share of total EU allocated expenditure, the total amount of EU allocated expenditure, the agreed rebate rate of 66% and certain changes since 1984 in the EU own resources system which have benefited the UK.

This correction mechanism, which underlies the current arrangements for the UK rebate, was arrived at after much vigorous political debate and negotiation over several years. The issue could be said to have almost dominated the EU agenda in the early 1980s. It certainly dominated relations between the UK and the EU. The UK rebate arrangements represented a political agreement between the member states as to what was the most acceptable solution to what had become a most contentious issue.

Decisions on the method of financing the EU, known as the EU's own resources system, including the UK rebate, are taken by unanimity. The UK rebate will be one of many important issues that will arise for discussion during the upcoming negotiations on the post-2006 financing and expenditure of the EU. It looks likely that the substantive debate on post-2006 EU finances might well start during our Presidency from January to June 2004. The negotiations are likely to take some time and will certainly not conclude during the Irish Presidency. It can take the best part of two years to reach agreement in negotiations of this type. The substantive debate will begin when the Commission, which has the right of initiative, sends to the European Council a communication on post-2006 EU financing. We expect to see the communication in the next few months.

A Presidency is expected to progress issues with a view to advancing the interests of the EU as a whole and with a view to securing political agreement among member states and EU institutions. Ireland will fulfil its responsibilities in this regard. In the negotiations over the next couple of years, Ireland will, like every member state, defend its national interests in the common endeavour to agree policies that best serve the objectives and ambitions of the EU. The final agreement will encompass all issues, including the UK rebate, and will reflect what is politically acceptable to all member states of the EU.