Embargo: 00:01 Wednesday 14 March 2007

Contact: Owen Williams 020 7219 8659


The House of Lords European Union Committee have today dismissed calls for the funding of the European Union to be shifted towards direct taxation of EU citizens.

The statement comes in the Committee's report, Funding the European Union, which asserts that the current main method of funding the EU, national contributions based on Member States' Gross National Income, is fair, cheap to administer and easily understood. This currently makes up 69% of EU income.

The Committee are clear in dismissing calls for direct EU taxation of citizens stating that judged on the criteria of its suitability for revenue raising a direct tax on citizens has no advantages over the GNI based system.

The Committee also reject calls to make the EU's revenue generation more distributive to poorer Member States. They argue that the pressing need for reform in this area is in relation to EU expenditure, the traditional method of redistributing wealth between Member States. They suggest that reform of the EU expenditure regime, including the CAP is the most pressing need to help disadvantaged members states and that this reform is a prerequisite for the UK agreeing to a reduction in its rebate.

The Committee also consider the EU's two other revenue streams. In regard to Traditional Own Resources (EU income generated by duties imposed on imports into the EU and on agricultural products, which make up around 15% of EU income) the Committee state that they see no need for change to the current regime.

However the Committee are less supportive of the levy on Member States' VAT base. This makes up around 15% of EU income and is criticised as being expensive to administer and confusing for the public. In order to calculate the level of payments from each Member State an artificial harmonised VAT system has to be calculated across the EU. This adds costs to the process and means Member States' contributions bear little resemblance to their actual VAT take. The Committee recommend that this VAT based system is phased out and incorporated into the GNI based contributions. The Committee assert this would be both fairer and more easily understood by citizens.

Commenting on the publication of their report, acting Committee Chairman Lord Watson of Richmond, said:

"We have found little evidence to support switching the funding of the EU from Member States providing national contributions to a system based on direct taxation.

"In this aide memoire, the Committee concluded that the GNI-based revenue contribution is fair, easy to understand and avoids excessive bureaucracy.

"The Committee feels that attempts to redistribute money to poorer Member States should be done through EU expenditure not taxation."

Notes to Editors

1. The report is published by The Stationery Office, Funding the European Union, House of Lords EU Committee, 12th Report of 2006/07, HL paper 64.

2. The full report will be available online shortly after publication at:

3. The members of the Committee who conducted the inquiry are:

Baroness Cohen of Pimlico (Chair)

Lord Blackwell

Lord Cobbold

Lord Giddens

Lord Inglewood

Lord Jordan

Lord Kerr of Kinlochard

Lord Maclennan of Rogart

Lord Steinberg

Lord Watson of Richmond