A guide to the EU budget

In 2019 the EU spent €160 billion. This is equivalent to around 1% of national income across the EU’s Member States. The majority of the EU’s spending goes on policies aimed at supporting farming and agriculture and improving Member States’ economies and competitiveness.

This briefing includes only limited analysis of what the UK contributes to the EU budget and receives from it. Our briefing The UK’s contribution to the EU budget goes into more detail on the subject including payments after Brexit.

Eu spending

The EU plans its spending in ‘financial frameworks’ that generally span seven years. The framework sets out the maximum the EU can spend each year and allocates spending to broad priorities. The MFF sets out the EU’s long-term budget but the detail of the EU’s annual budgets are negotiated each year by the European Commission, the Council of Europe and the European Parliament within the limits set by the financial framework.

37% of the €160 billion spent by the EU in 2019 went on its agricultural policies. Subsidies were provided to farmers – which is the EU’s biggest single spending area – and funding was provided to improve rural economies and farming’s productivity. Over 40% of the EU’s spending went to programmes aimed at improving the economies of the EU’s poorer regions and countries and improving competitiveness in all EU regions.

The EU’s revenues

The majority of the EU’s revenues comes from the contributions made by Member States. Member States contribute a share of their adjusted VAT receipts and their Gross National Income (GNI) to the EU. They also collect customs tariffs on behalf of the EU. Two-thirds of EU revenues in 2019 came from Member States’ GNI contributions.  

The EU receives a small proportion of its revenues from other sources such as taxes on EU staff salaries, non-EU countries’ contributions to programmes, interest on late payments, and fines on companies breaching competition law etc.

The UK’s rebate

The UK received a rebate on its contribution. The rebate was introduced, in 1985, to correct for the fact that the UK was making relatively large contributions to the EU budget but receiving relatively little funding from it.  

The 2021 – 2027 budget plan                    

The EU has agreed its spending and revenue plans for 2021-2027. It has also agreed extra spending to tackle the economic fallout from the coronavirus pandemic. The EU will borrow from capital markets to fund the extra spending.

Member States’ contributions to the EU budget and receipts they receive from it

Generally speaking, the richer Member States are net contributors to the EU budget – they contribute more to the budget than they receive from it. Poorer states are generally net recipients – they receive more from the EU budget than they pay in. In keeping with this, the UK made the second largest net contribution to the EU budget in absolute terms, and the sixth largest net contribution per head of population.

Brexit

This briefing does not consider what Brexit means for the UK’s contribution to the EU Budget. Nor does it cover the financial settlement that UK and EU have agreed; an issue discussed in the media as the ‘divorce bill’, ‘brexit bill’ or ‘exit bill’. These issues are discussed in the following briefing papers:

• The UK’s contribution to the EU budget
• Brexit: the financial settlement