Fontainebleau abatement, code FKKL re-classification

You asked

In the 2016 Pink Book table 9.9, the above series (Fontainebleau abatement, code FKKL) was treated as a positive credit. This is the treatment adopted, I believe, since the payment first arose. In the same table in the 2017 edition of the PB, the payment was treated as a negative debit.

Can you please publish the advice from the classifications team in ONS (and any correspondence with international bodies who work on such issues) that explain the original treatment, the new treatment, and the reasons for the change? Had anything changed in the payment as such or was it a change in attitude towards an essentially unchanged payment?

In the new format, FKKL is described as "of which: Fontainebleau abatement" but it is not clear what it is a part of. Can you please explain the meaning of "of which"?

Can you please tell me where this change was announced?

We said

Thank you for your request.

There has been no fundamental change in recent years to either the way that the UK pays its contributions to the EU Budget or the net impact of such contributions, but you are correct that there was a change in the presentation between Table 9.9 in Pink Book 2016 and Pink Book 2017.

In Pink Book 2016 (Table 9.9) the Fontainebleau Abatement is shown as a credit to the UK Government, whereas in Pink Book 2017 it is shown as a negative debit. As such, the presentational change has no impact on the net balance of UK official transactions with institutions of the EU.

In the 2017 table the Fontainebleau Abatement is shown as an “of which” of the “GNI own resource” payables (HCSO + HCSM). That is, it is an amount deducted from the UK’s GNI-based EU Budget contributions.

The table changes were pre-announced in section 3.3.15 of the June 2017 article National Accounts: Detailed assessment of changes to sector and financial accounts, 1997 to 2012. A similar presentational change had also been previously introduced within the Public Sector Finances published in September 2016.

To appreciate the background to the presentational change it is informative to go back to the European System of Accounts (ESA 1995). Under the European System of Accounts 1995 different elements of member states contributions to the EU Budget were recorded in different areas of the national accounts, for instance GNI-based budget contributions were recorded as miscellaneous current transfers from governments to the EU, VAT-based budget contributions were recorded as taxes paid directly to the EU and, in the UK, the Fontainebleau abatement (or UK rebate) was recorded as a current international co-operation receipt from the EU. This recording can be seen in Table 12.1 of Blue Book 2013. The Pink Book of the time maintained consistency with this recording by showing VAT-based and GNI-based budget contributions as debits and the UK rebate as a credit.

In 2014, the European System of Accounts 2010 (ESA 2010), introduced a new transaction category specifically for VAT and GNI-based budget contributions. However, the new category could only be used to record government payables, so on introduction of ESA 2010 the ONS initially moved only the amounts previously recorded as payable to the EU budget to the new transaction category. Continuing to report the UK rebate receivable as a current international co-operation receipt.

However, as mentioned above the UK rebate is an amount that is deducted from the UK’s GNI-based EU Budget contribution. HM Treasury’s annual white paper on EU Finances states,

“The effect of the rebate is to reduce the amount of the UK’s monthly GNI-based payments to the EU Budget. It does not involve any transfer of money from the Commission or other member states to the Exchequer." (A.10.4 of European Union Finances 2016)

Considering this, and the fact that the UK rebate is financed through the increased VAT-based and GNI-based contributions of other countries to the EU Budget, we consulted with Eurostat, who in 2016 confirmed that the UK rebate should be recorded as a negative within the specific transaction category for VAT and GNI-based budget contributions (D.76).

As a result we changed the presentation of our statistics accordingly. First in the Public Sector Finances in September 2016 and then in Blue Book 2017 and Pink Book 2017 in October 2017.