€2.1bn with six weeks to pay: who, how and why?

The UK has been presented with a one-off bill to top up the EU budget by €2.1bn, or £1.7bn, with payment due on 1st December 2014.

UK Prime Minister David Cameron has reacted angrily, saying the demand has been made at “a moment’s notice”, and indeed the size of the payment and the six weeks in which to pay it seem a ridiculous demand of a country still in recovery from deep economic recession. Yet according to European Commission President Jose Manuel Barroso and others within the EU, the payment should come as no surprise as the accountancy changes underpinning it were agreed to long ago. So who knew what, how has the figure been reached and why has the recalculation been made?

Firstly, Cameron’s surprise and outrage during the speech he delivered on Friday 24th Oct were genuine. The issue had been discussed in an EU budget committee on Friday 17th October, and George Osborne had the information by Tuesday 21st October, but Cameron was only made aware of the €2.1bn surcharge when he was briefed by Ivan Rogers, who is the UK’s permanent representative in the EU, on Thursday 23rd Oct.

The exact figure owed and the payment due date, even if we were to take the 17th Oct budget committee as the point at which both should have been made known to the PM, have undoubtedly been issued late in the day. But should the Treasury have been making their own calculations and anticipated this much earlier?

The €2.1bn bill has been presented to balance the UK’s underpayments in the years 2002-2013. The key consideration is GNI, or Gross National Income. The UK had been underestimating its GNI, not only through the previous exclusion of drugs and prostitution in the figures, but also by under-recording contributions in charity work and through changes to the way investment is taken into account.

All countries within the EU pay in as member states, and a fixed proportion of GNI is part of the bill. As the UK’s GNI has been revised upwards, so the UK’s bill has been revised upwards. The largeness of the figure reflects both the size of the UK’s increase in reported Gross National Income and the fact that it is topping up eleven years of underpayments in one go.

The Conservatives have been losing ground to UKIP on the issue of Europe and this latest development is pure cannon fodder. The question is, for which side? Cameron is currently refusing payment and showing that he is taking a tough stance on Europe. But if he is forced to back down and pay, UKIP will have another prominent example of why they feel EU membership is not in the UK’s best interests.

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