The following is an adapted version of an article written by the Minister for Regional Development and Public Administration and researcher at the Europe Strategy Research Institute Tibor Navracsics, originally published in Hungarian on the Five Minutes Europe blog of Ludovika.hu.
The United Kingdom, along with Denmark and Ireland, joined the European Community on 1 January 1973. The first wave of European integration had a long and turbulent history. Negotiations, which began in 1961, were vetoed twice—in 1963 and 1967—by French President Charles de Gaulle. Of the original group that began negotiations, Norway and Sweden dropped out in the final stretch, as their citizens rejected accession in their referendums. Ultimately, however, in 1973 the European Community viewed the accession of the three former EFTA member states as a victory for the logic of integration.
The system for the new members’ financial contributions was divided into two phases. The transitional period was to last until the end of 1978, followed by a permanent financial contribution from the three member states beginning in 1979. However, the United Kingdom contested the level of the permanent financial contribution from the outset. British Prime Minister James Callaghan was the first to officially indicate, upon his departure, that he did not agree with the level, and the dispute soon became a defining element of the UK’s European policy under the governments led by Margaret Thatcher that followed Callaghan.
For the British, the main problem was that the fixed financial contribution made the United Kingdom a net contributor for two reasons. First, compared to other member states, British foreign trade was much more oriented toward markets outside the European Community. Due to North Atlantic and Commonwealth ties, British exports and imports were conducted with partners outside the European Community, meaning these were transactions subject to customs duties. Within the European Community, however, customs revenues went to the Community budget, not to national treasuries.
The other main reason was that the British were barely able to take advantage of the benefits arising from agricultural and rural development subsidies, which at the time still accounted for 70 per cent of the Community budget. The UK had the smallest agricultural sector among the member states, so it was unable to draw down a large share of the subsidies. As a result, the country was unable to offset its financial contributions by receiving the subsidies to which it was entitled.
As mentioned before, this debate has been a constant feature of relations between the United Kingdom and the European Community from the very beginning. The Thatcher Government, formed in 1979, immediately began negotiations. By April 1980, at the European Council meeting in Luxembourg, Margaret Thatcher had already secured a temporary agreement for the period 1980–1982 to have a portion of British contributions returned. The agreement was later extended to cover the year 1983 as well.
‘The British government threatened to withhold all British contributions to the Community budget unless the member states met its demands’
Thatcher, however, was not satisfied with the arrangement’s temporary nature and sought an agreement that would guarantee the British a permanent, predictable return of a portion of their contributions. Heated debates ensued, during which the British government threatened to withhold all British contributions to the Community budget unless the member states met its demands. The crisis was finally resolved at the 1984 European Council meeting in Fontainebleau.
As a result of intense negotiations, Margaret Thatcher secured a rebate of two-thirds of British contributions from the Community budget. The agreement was a huge success for Margaret Thatcher personally, and it also clearly demonstrated the British government’s ability to assert its national interests.
The issue of the British rebate enjoyed broad public support in the United Kingdom in the years that followed, until the country left the European Union. Although the other member states found it difficult to accept that they would have to shoulder part of the burden in this way, they were unable to renegotiate the UK’s role in 2005, as Tony Blair had designated the rebate issue as the cornerstone of British European policy.
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