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Did you know that the EU budget...

  • very small compared to the European Union’s wealth – around 1% of it.
  • much smaller than the UK budget.
  • being modernised to ensure that EU funds are spent more effectively on projects producing growth and jobs.
  • ...funds innovative and ambitious projects, such as medical research.
  • not for Brussels – only 6 % of the budget is spent on administration – but for the whole of Europe, including every region of the UK.
  • a budget for everyone: the elderly, young people, workers and entrepreneurs all benefit from projects funded by the EU.
  • responding to current austerity measures in Member States by reducing administrative expenditure growth within EU bodies.

What is the EU budget?

The EU budget is an important tool that puts EU policies into practice. It finances actions that Member States cannot fund on their own or that they can fund more economically by pooling their resources.

The EU budget is adopted through a democratic procedure: it is prepared by the European Commission (the EU’s executive body) and is then discussed and agreed by the Council of the EU (where elected ministers represent EU Member States, including the UK) and by the European Parliament (where the democratically elected UK representatives sit).

Once adopted, the budget is then managed either jointly by the EU Member States and the Commission, or directly by the Commission.

In practice, 80 % of the EU budget is managed by national or regional governments. Through grants, loans and other forms of finance, the EU budget provides financial support to hundreds of thousands of beneficiaries, including students, scientists, NGOs, SMEs, towns, regions and many others.

Where does the money come from?

The EU budget is largely financed by ‘own resources’ which are based on three kinds of sources:

  • customs duties on imports from outside the EU and sugar levies,
  • a small part of the value added tax (VAT) levied in the EU,
  • gross national income (GNI): each Member State transfers a standard percentage of its GNI to the EU. This forms the largest source of income for the EU budget (74% in 2013).

This system has been unanimously decided on by EU Member States for a 7-year period, and has been ratified by all the national parliaments. Its aim is to provide a reliable and sufficient level of revenue for the EU budget, while at the same time taking into account the Member States’ ability to pay. Each Member State thus contributes in line with its wealth.

The other sources of revenue for the EU budget include taxes on EU staff salaries, fines on companies for breaching competition laws and bank interest, etc. There is no direct EU tax. EU countries remain in control of their taxes.

Where does the money go?

Some 94 % of EU money is spent on the various EU policies, and most of it goes back to Member States. In many cases the EU budget supports large and complex projects. One of them is the European Partnership Action against Cancer, where collective European effort helps to prevent the disease and find a cure for it.

Approximately 6 % of the EU budget is spent on the functioning of the EU institutions. This is used to pay for the salaries and pensions of EU employees, translation and interpretation, security, buildings and IT systems etc. This expenditure is necessary in order to allow the EU to work.

Too many EU civil servants?

There are around 55 000 EU civil servants and other employees serving 508 million Europeans. National civil services in large countries like the UK – 464 000 in 2012 – typically have many times that number.

Furthermore, in order to adapt to the harsh economic situation in Europe, the EU institutions are also cutting costs: the Commission’s wide-ranging staff reform is expected to save GBP 6.78 billion (EUR 8 billion) by 2020, reducing its staff by 5 %.

Who keeps an eye on EU spending?

The Commission has put into place robust internal control measures in order to ensure that funds are spent efficiently and effectively.

As 80 % of the EU budget is managed by national or regional governments, Member States also play an important role in ensuring that rules are observed, and in detecting and addressing irregularities and fraud.

Additionally, the European Court of Auditors reviews the EU accounts every year. For several years the Court has confirmed that the EU accounts are properly kept, but also points out errors in procedures (e.g. accounting errors by national programme participants or claims for non-eligible costs), most of them happening at Member State level rather than within EU institutions. Errors do not mean that EU money is lost, wasted or affected by fraud. A large part of the money spent in error is recovered.

In addition, the European Parliament approves how the Commission has spent the budget following the end of every financial year.

National auditors, including in the UK, regularly point to significant levels of error in national accounts. It is worth noting that the former head of the UK’s National Audit Office, Sir John Bourn, has said to the UK parliament – that if the UK operated the same tough system as the Court of Auditors, the overall UK accounts would also need to be qualified.

If you want to see which entities have received EU funding, the financial transparency system will show you which entities have received payments from the EU budget.

The EU multiannual framework 2014-20 in brief

Although the EU budget is adopted every year, it must be established within the limits of the multiannual financial framework (MFF). The MFF is an expenditure plan setting maximum annual amounts which the EU can spend in different fields of activities over a 7-year period. It therefore shapes the EU’s political priorities for 7 years.

For the 2014-20 funding period, the EU wants to meet the targets of the Europe 2020 growth strategy, focusing on what Europe needs in order to overcome the economic and financial crisis and concentrating on areas where it can make a genuine difference. Some of the Commission’s proposals for radical reform were watered down by the Member States but very important changes remain. Key elements of the 2014-20 MFF include:

  • A focus on growth, jobs and competitiveness with increased investment in education and research, and a new Connecting Europe Facility fund to boost pan-European infrastructure projects for transport, energy and information and communication technologies.
  • A higher quality of spending thanks to simpler rules for EU funds, a clear focus on investments producing tangible results, as well as the possibility of suspending EU-funding if a country fails to implement sound economic and fiscal policies.
  • A reformed common agricultural policy for a more competitive and environmentally friendly European agriculture.
  • The fight against climate change as a key component of all major EU policies and devoting 20 % of the 2014-20 MFF to measures related to this.
  • Solidarity with the poorest EU countries and regions by concentrating the largest portion of regional funding in those parts of the EU and by introducing a new youth employment fund.
  • Reduced administrative expenditure growth thanks to cuts in staffing numbers at European institutions.

The EU budget and the UK

UK public expenditure is more than five times bigger than the EU budget. According to the UK statistics — which offset some non-tax government revenue against expenditure — net public spending (from April 2012 to April 2013) reached GBP 675 billion (EUR 805 billion), that is 42 % of the country's GNI.

According to the EU's statistics (*), the UK's public expenditure amounted in 2013 to around GBP 700 billion (EUR 894 billion).

Just for comparison, using the same method Germany's public expenditure amounted to around GBP 957 billion (EUR 1 223 billion) and that of Lithuania to around GBP 9.4 billion (EUR 12 billion) in 2013.

The EU budget for the 28 member States on the other hand was around GBP 120 billion (EUR 144 billion), roughly 1 % of the Union's GNI.

The EU and national budgets serve different, yet complementary purposes. The EU budget targets areas where EU money can generate added value. For example, a project of such magnitude as the European satellite navigation system Galileo could not be financed by a single Member State alone.

Unlike the UK budget – or any other national budget – the EU budget does not fund defence expenditure or social protection, but is mostly investment spending. For example, the EU financed more than half of the investment needed to provide Cornwall and the Isles of Scilly with superfast broadband by 2015, making the region one of the best-connected places in the world.

In 2013, the three main spending areas of the UK budget were social protection, health and education.

The UK pays more into the EU budget than it receives from it. However, the net balance does not accurately reflect the many benefits of EU membership. Many of them, such as peace, political stability, security and freedom to live, work, study and travel anywhere in the Union cannot be measured. The UK government estimates that the single market brings in between GBP 31 billion and GBP 92 billion a year into the UK economy – or between 5 and 15 times the UK net contribution to the EU budget, which, once the UK’s rebate is taken into account, amounted to about GBP 7.258 billion - EUR 8.641 billion in 2013.

Moreover, European investments are intended to benefit the EU as a whole, and European funding in one country can benefit other EU members. Thanks to the single market, UK companies get contracts under EU-funded projects in other European countries. For example, the UK company, Intersurgical, was involved in two projects modernising production in Lithuania in 2009 and 2010. It received approximately GBP 1.05 million (EUR 1.25 million) for its contribution.

The UK is also one of the top recipients of EU research funding, second only to Germany. Research into revolutionary material graphene, discovered by scientists at Manchester University and set to become the wonder material of the 21st century, will receive GBP 45.36 million (EUR 54 million) from the EU.

Operating budgetary balance: the difference between what a country receives from and pays into the EU budget. There are many possible methods of calculating budgetary balances. In its financial report,the Commission uses a method based on the same principles as the calculation of the correction of budgetary imbalances granted to the United Kingdom (the UK correction). It is, however, important to point out that constructing estimates of budgetary balances is merely an accounting exercise of the purely financial costs and benefits that each Member State derives from the Union and it gives no indication of many of the other benefits gained from EU policies such as those relating to the internal market and economic integration, not to mention political stability and security.

Too much money spent on agriculture?

EU countries have made agriculture a European rather than national policy. It is the only policy almost entirely funded by the EU. That is why it represents a large proportion of the EU budget. It is also less costly for EU countries as a whole, than implementing 28 different national policies.

The common agricultural policy has undergone a major reform, whereby its share of the EU budget has fallen from 70 % in 1985 to around 40 % today, and is set to continue falling to 33 % in 2020. It has also been refocused to avoid encouraging unnecessary production – there is no more talk of wine lakes and butter mountains. A new reform which came into force in 2014 will further strengthen European agricultural competitiveness, making it more environmentally friendly and reducing the gap for countries receiving less money than the EU average.

* The difference between the two figures is because the UK government, in public spending figures used nationally, offsets against expenditure some non-tax revenue (such as charges for various services and for publications, licences, rents on government owned property, etc) to give a net figure. The Ameco statistics do not deduct this revenue from overall public spending and therefore are higher.

All values in national currencies have been converted using exchange rates from October 2013.

EU projects near you

Agriculture and rural development

Success for a pre-packed vegetable business in Northern Ireland

Loughshore Veg Ltd, a pre-packed vegetable producer in Derrylaughan, Northern Ireland, wanted to meet the demands of large supermarket chains. By investing in new buildings and machinery, the company has been able to increase its capacity, improve staff working conditions and create jobs. This, in turn, is expected to create opportunities for primary producers, who will be able to expand their businesses in order to meet the increased demand. (EU funding: GBP 401 520 -EUR 478 000)

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Infrastructure and transport

Superfast broadband in rural areas (Cornwall and the Isles of Scilly)

Thanks to the Superfast Cornwall project, at least 80 % of homes and businesses in Cornwall and the Isles of Scilly will have fibre-optic superfast broadband by 2015, making the region one of the best-connected places in the world. The EU contributed GBP 55.1 million (EUR 65.6 million), more than half of the investment needed.

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West coast mainline

The EU contributed GBP 66 million (EUR 78.6 million) to the modernisation of the west coast mainline. The route connects London, Birmingham, Manchester, Liverpool, Glasgow and Edinburgh. Thanks to the project, the line now connects with the Channel Tunnel rail link and thus with mainland Europe. As a result, passenger and freight journey times have been cut (journey times from London to Manchester reduced to 2 hours), helping to shift traffic from the roads.

Better access to Port Talbot (Wales)

The EU contributed GBP 51.7 million (EUR 61.5 million) to opening up access to Port Talbot and its dock area. The new dual carriageway access road and cycle/pedestrian path will improve access to the city and promote sustainable transport solutions. Less traffic congestion will help to improve both the environment and quality of life in Port Talbot. In addition, better access to the dock area will increase shipping activity and waterfront development in the region, as well as improve access to European markets for local businesses.

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Education, culture and social inclusion

Older people for Older people (Scotland, Northern Ireland, Finland, Denmark, Sweden)

The O4O project (Older people for Older people) developed alternative ways of providing support and services for older citizens living in rural areas of northern Europe by mobilising the elderly to help their peers. In Tongue (Scotland), a community transport group was set up. ‘It gives me a bit of my independence back,’ says 95 year-old Tongue resident Georgina MacLeod. The O4O project received GBP 1 million (EUR 1.2 million) from the EU.

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Redundancy Action Scheme (Wales)

The ReAct programme funds training for people hit by redundancy. The goal is to help them increase their skills and improve their chances of returning to work as quickly as possible. The programme can also fund employers who recruit people made redundant. Thanks to ReAct, Dawson Shanahan Ltd has been able to re-employ and train 21 workers. The programme received GBP 23.4 million (EUR 27.8 million) from the EU.

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European Capitals of Culture

After Glasgow in 1990, Liverpool was European capital of culture in 2008. The many cultural events, activities and projects organised attracted 10 million visitors. Local authorities also took this opportunity to complete a large restoration programme for the city. The Liverpool Culture Company received GBP 808.7 million (EUR 962.7 million) from different EU funds.

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Did you know that in 2012-13, 14 572 British students studied or worked abroad thanks to the Erasmus exchange programme?

They also received a grant from the European Commission to contribute towards the extra costs of living abroad.

Health and research

New Centre for Regenerative Medicine (Edinburgh)

The EU contributed GBP 5.5 million (EUR 6.6 million) to the construction of new facilities for the Scottish Centre for Regenerative Medicine. The new building contains a state-of-the-art laboratory, facilities to manufacture stem cell lines and office space for biotechnology companies. This combination of expertise will significantly benefit research into conditions such as cancer, heart disease, diabetes and multiple sclerosis, and provide an optimum environment for translating laboratories’ discoveries into treatments for patients.

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European Partnership Action against Cancer (all members of the EU)

The European Partnership for Action Against Cancer (EPAAC) brings together different stakeholders from all over Europe in a joint effort to prevent and control cancer. The Partnership facilitates the transfer of knowledge and best practices between EU countries. It should help to reduce cancer incidence by 15 % by 2020, and ensure that all EU countries have national cancer plans. The Partnership received GBP 2.7 million (EUR 3.15 million) from the EU.

Did you know that the EU invests over GBP 151.2 million (EUR 180 million) per year in cancer research?

A major part of this budget is used to encourage key players from across Europe and beyond to join forces in collaborative research projects, to find new ways to fight cancer and help patients.

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Environment and sustainable development

Resource efficiency support (Manchester)

ENWORKS provides environmental advice and a support service that helps companies to make better use of resources and shows how green innovation can boost productivity, cut costs and increase profits. The EU co-financed the project with up to GBP 6.2 million (EUR 7.4 million). Thanks to ENWORKS’ advice, industrial bakery equipment company Cleanbake has installed a heat recovery system in ovens, changed the way it uses chemicals and reduced hazardous waste. This has helped Cleanbake to reduce costs and win new contracts.

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Wind turbine blades testing facility (Northumberland)

The EU contributed GBP 4.62 million (EUR 5.5 million) to build a facility designed to test offshore wind turbine blades. The new facility will be the largest in the world and has been designed to test the longer blades being developed. It will ensure that the UK and the EU can continue being a leader in this sector and export their technology around the world.

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European Social Fund: a personal story (video)

Training provides a second chance

All values in national currencies have been converted using exchange rates from October 2013.