Are we paying too much into the EU budget?

The short answer to this is; yes, we are. At the moment we are paying too much and we have in the past been paying far too much, but under the present formula, if unchanged we will move from second highest net contributor to second lowest.

Now a few of you may think this would be very welcome and justice considering how we have been fleeced in the past (you have a point), but even the Tories and other right wingers admit this would be unfair on poorer members of the EU.

To understand what is going on here, we have to look at the history of our contributions, how they are calculated.

Member states contributions to the EU are determined by their VAT payments and on the amount of goods imported from outside the EU. This funding formula was determined before the UK joined (mainly at the instigation of France).

This factor coupled with the large part of the budget taken up by the CAP (again negotiated before our membership), means we pay far more into the EU than we receive. This is because the UK has always had a large part of its trade with countries outside the EU (compared to other EU countries) and has a relatively efficient and small agricultural sector, so receives little from the CAP (we are second net contributors after Germany who have always been by far the largest net contributor). (So every time you choose the New World or Asian product over the British, German, Italian or French product, remember that you are contributing to the EU budget).

This was part of the harsh terms we accepted in exchange for membership of the EU in 1973 and this net contribution was even higher then and even more unjustified considering our relatively poor status. Finally, in 1984, Margaret Thatcher negotiated a rebate to alleviate this injustice. To give credit to Thatcher (and that is something I do rarely), it has turned out she negotiated a very good long term deal at Fontainebleau.

As the EU has expanded, the size of the rebate has increased and the CAP has decreased as a percentage of the EU budget. Both of these factors will become even more favourable for us when the EU budget includes the new Eastern European members.

The UK economy has prospered within the EU market and the EU expansion will benefit us even more (Those who argue for us to leave, should consider why there is a queue of countries desperate to join). Couple this with the fact that our net contribution is destined to fall considerably and it is not surprising that the UK finds itself isolated on the issue of the rebate. Some relinquishment is fair.

The next issue we have to look at is; should the CAP be reformed in return for us giving up some of the rebate?

The first problem we have to overcome and the main reason France and the others use to defend their intransigence on this issue, is that, we only agreed a deal on the CAP in 2003, a deal which still has 8 years left to run, until 2013. This quite rightly puts those defending the CAP in a strong position. How can we justify tearing up agreements so soon after negotiating them?

Now the arguments against the CAP are strong - there are many things wrong with it, but from a negotiating position the recentness of the deal on the CAP makes it very difficult to persuade others to back down on this issue.

We also have to examine why the CAP is there in the first place. European countries have always had to subsidise their agriculture.

Unless we want the whole country under concrete, we have to provide enough subsidies to farmers, so they can make a living (now I understand that the CAP is badly targeted, subsidising the chemical industry and encouraging the large monopolistic control of wholesale and retail by supermarkets and multi-nationals. This is just as big a problem as developing world competition, but even taking that into account, we still would need large subsidies to continue our agriculture, but we need to target them better - for instance to support organic farming which scandalously gets no support).

In fact in the UK before we joined the EU, our subsidies to agriculture were similar to the support they get now from the CAP.

Overall, if we want to continue reaping the benefits from the EU market and not become isolated in the EU, we have to offer some sort of deal that isn't going to leave us in a minority of one. Unfortunately that is going to mean losing some of the nice rebate cheque.