Q&A: Where next for the UK in Europe?

So what’s the problem?

It’s budget time for the European Union. Not just any budget, or even the annual budget, but big budget time – EU institutions want to define what their budgetary priorities are for 2014 to 2020 in the Multiannual Financial Framework.

The European Commission has proposed a 1.025tn euro budget for the next period, which is around £826bn. That’s a rise of five per cent compared with the 2007 to 2013 budget.

The prime minister wants the budget to be frozen in real terms, but a number of Tory rebels joined Labour, led by Ed Miliband and shadow chancellor Ed Balls, who called for a real-terms cut. They say that in times of austerity, when national budgets are being cut, so too should the EU’s. 53 of them rebelled, which meant the government was defeated by 307 votes to 294.

So now the Commons has called for David Cameron to argue for a cut when he goes to Brussels for the talks on November 22.

Although the vote isn’t binding, Downing Street may be slightly concerned that EU leaders will use the vote to argue that Britain isn’t serious at the negotiating table.

Anything Mr Cameron comes back with will also require parliamentary backing at Westminster.

What happens now?

Agreement on the framework must be unanimous among all 27 member states and the European Parliament for the proposals to come into play.

The UK, along with every other member, does have a veto power.

If the UK, or indeed any other member, chooses to wield its veto and there is no agreement in time, then the 2013 budget becomes the figure for 2014, with an adjustment of two per cent for inflation, and negotiations continue until there is an agreement.

That may sound like what Mr Cameron is asking for, but it isn’t.

He wants to base the freeze on 2011 levels, which were lower. The British government says that was closer to the average spend over the 2007 to 2013 period, and would mean a freeze on a total budget size of £799bn, or 885.6bn euros in 2011 prices.

Cyprus, who holds the presidency, came back with an alteranative framework this morning and slashed £50bn off the EC’s proposal. But it’s still more than £50bn higher than what the UK wanted to pay.

But if the UK continues to veto at every turn, it will start to look as though the government doesn’t actually want to be in the EU anymore.

Some might genuinely believe it’s time to get out, but that may not be the best strategy to play as it doesn’t bode well for international relations.

On the other hand, some might argue that if the UK continues to act stubbornly, failure would mean that the EU can’t pay out as much as it wants to or needs to to newer, poorer regions. Likewise, the Framework agrees new programmes, which couldn’t be agreed upon were anyone to veto.

The UK has more bargaining power if it were to come to that, as it is less reliant on EU cash than other poorer nations.

Eventually, it’s been surmised, the EU may end up giving in to Britain’s demands, simply to get any form of budget through.

Who else is opposed to the budget?

Germany has also been calling for a cut in the amount of money the EU should spend over the next 14 years or so.

Echoing some in the UK, Guido Westerwelle, Germany’s foreign minister, said that the framework should take into account austerity measures governments are imposing.

Germany has been backed by other countries – Austria, the Netherlands, Sweden and the UK.

France, Finland and the Czech Republic also said the European Commission’s proposal was too high.

On the other hand, Spain has approved, along with Belgium.

How much does the UK get back from the EU?

It’s a fair question – the UK is the sixth largest net contributor, per capita, to the EU budget (the Netherlands is the first, followed by Denmark second and Sweden third).

In euros, it contributes 115.2 per person, according to figures from the EC. In 2011, it contributed around £6bn to the EU, or around 0.87 per cent of UK public spending.

The UK government estimates that the single market brings in £30bn and £90bn a year into the economy. That’s between five and fifteen times the UK net contribution.

So is it all about the money?

No.

As the Framework will decide expenditure ceilings, programmes the money can be spent on, and rules defining how it can be financed, it ends up shaping quite a large part of EU policies and its financial leeway.

So agreement isn’t just about setting a financial target, it’s about deciding how money should be spent.

The EC has proposed spending 386.9bn euros on agriculture and rural development, with the largest chunk of that for direct payments and market expenditure.

It also wants to spend 376bn euros on what it calls “economic, social and territorial cohesion” – usually money for infrastructure, either for poorer areas, or for newer member states, many of which are also poorer.

In the past, “cohesion funding” has also helped the UK – it has helped create markets for the UK, for example Tesco, which opened 350 supermarkets in Poland alone.