Cold comfort for hard-up Britain: The biblical sentiment that it is better to give than to receive finds no support among EC member states. Andrew Marshall explains why

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The Independent Online
BRITAIN is a poor country. Not by global standards, perhaps, but by those of our European partners, we are definitely second- rate. Yet Britain is one of the countries that pays more to the European Community than it gets out.

These two points will be hammered home time and again in the next few weeks. The EC budget, one of the most tangled thickets in the forest of European bureaucracy, is due to be reformed by the end of this year. And the claim of poverty is one that Britain hopes will save it several hundred million pounds.

The main reason that the EC budget seems so skewed against Britain is the paramount status of farming. Agriculture forms by far the largest part of EC expenditure, with 56 per cent of the pounds 44bn total. Because the Common Agricultural Policy subsidises exports and guarantees farmers' income, the system works best for countries that are agricultural exporters, or which have inefficient farmers. Britain imports food and has a relatively efficient farming sector, so we don't do do very well. France is the main beneficiary, taking some 19 per cent of the budget for farm spending; Germany, Italy and the Netherlands take another 40 per cent among them.

But contributions to the budget are based roughly on the size of each economy, assessed annually by looking at customs duties, VAT payments and gross domestic product. Since Britain is one of the largest economies in the EC, it pays about 15 per cent of the EC's revenue, while receiving only 7.5 per cent of agricultural spending. The Netherlands, by contrast, gets about 11 per cent of EC farm spending, yet contributes only 6 per cent of EC revenue.

The UK does better in other areas of EC spending, largely because of its economic problems. The Structural Funds - cash for regional or social development - take up the second greatest tranche of spending, with almost a quarter of the overall budget. These funds are targeted at three main types of region. First, there are the 'lagging regions': Northern Ireland qualifies for special aid as a lagging region, as does the Republic of Ireland. The other regions that qualify, with GDP of less than 75 per cent of the EC average, are mainly in southern Europe.

Second, there is aid for regions seriously affected by industrial decline. Britain received 38 per cent of all the cash doled out for this by the EC in the period 1989- 93, by far the largest national share. Third, there is aid for the promotion of development in rural areas. Britain is set to receive pounds 936m in 1992-93 for these last two objectives, covering nine areas: North-east, North-west and Eastern England, the West Midlands, West Cumbria, industrial South Wales and Cumbria, and Western and Eastern Scotland.

Even after this is taken into account, Britain loses out, because of the bias of spending towards agriculture, and the fact that many of the EC's other large rich countries get so much back. So since 1984, Britain has had a rebate amounting to two-thirds of the net difference between what it pays in and what it gets in return. In 1991, there was a net outlay of pounds 546m, but amounts vary from year to year. Projected figures for 1992 show that we will pay about pounds 7.5bn, get about pounds 3bn in return and have a pounds 2bn rebate: a net outlay of pounds 2.5bn.

The rebate was won by Margaret Thatcher at the 1984 Fontainebleau summit after an acrimonious row stretching over four years. It is one of the legacies of the Thatcher regime, which some of Britain's EC partners - especially Germany, the largest net contributor by far - would most like to see disappear, but which the Government hopes to hang on to. It could prove a sticking point in the renegotiation of the EC's finances, which is taking place this year: the so-called Delors II package.

Delors II represents a big increase in EC spending, in particular the doubling of the Structural Funds. Also on the agenda is the creation of a new EC kitty, the so- called Cohesion Fund, planned for in the Maastricht treaty. This is aimed at the EC's poorer members, those with a GDP of less than 90 per cent of the EC average: Spain, Portugal, Ireland and Greece. One proposal put forward by the commission is that the rebate should not apply to contributions to the cohesion kitty. That, the Treasury calculates, could cost Britain an extra pounds 200m a year. Not a lot, out of the overall government budget, but when every penny counts, as now, pounds 200m is important.

There has been considerable speculation that after the economic turmoil of the past few weeks, we are heading down into the cohesion camp ourselves. Britain's GDP is currently about 95 per cent of the EC average, on a purchasing-power parity basis: in other words, taking into account how much we can buy with our money.

The decline in the pound's value would not take us below the 90 per cent trigger point, contrary to some reports over the past few months. In particular, weighting it by purchasing-power parity is intended to remove the impact of devaluations when making international comparisons.

Many observers suspect that the very public breast-beating over the Cohesion Fund is part of a negotiating strategy to persuade Britain's partners of just how poor we are; and to undermine claims that the British rebate should be cut back.

But the basic question remains unanswered: why must Britain pay so much to the EC, and get so little in return? This question was asked from the point of principle in the early 1980s: now there are much more practical reasons.

The degree of British decline over the past decade has been less evident because of the relative boom in the 1980s in the South- east.

Now that service industries, such as manufacturing, are taking a hit, Britain's slide against its EC partners is more obvious. In the next few years, the EC is to complete the single internal market and, in theory, head towards a single currency. This may well increase the difficulties faced by Europe's problem regions, including those in Britain.

The inequities of the current system should make a compelling argument for thoroughgoing change in the EC's budget scheme. That is a massive task. Yet so far, virtually nothing has been achieved: the EC has had too much else to argue about. And the debate comes at a time when every EC government is watching the slow stream of incoming tax revenues dry up, while the outflow of expenditure quickens to a torrent. Thus, the rows are likely to be bitter when the Twelve finally do get to grips with the budget at the Edinburgh Summit in December.

The biblical claim that it is more blessed to give than to receive is one that cuts little ice as far as the EC is concerned. It is simply more expensive.

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