Rebate revisited: the accident of history that drove a wedge between Britain and Europe

Margaret Thatcher Speaking at a European Council meeting

Margaret Thatcher speaking at a European Council meeting - Credit: Sygma via Getty Images

It might have vanished with Brexit, but the UK's rebate was crucial to understanding UK-EU relations. John Elsom explores its history

In 1979, within six months of winning her first election, Margaret Thatcher attended her first European summit in Dublin. She went with a specific request. Britain was paying too much annually into the EEC’s budget and receiving too little in return. She demanded a rebate. She was offered £350 million, which she rejected as far too small. She wanted one billion pounds. "Let me be very clear," she insisted. "I am not asking the Community for money. I am asking for my money back."

The battle over the rebate lasted for nearly five years. It was settled at the summit meeting in Fontainebleau in 1984, with a complicated formula, whereby the UK received back annually two thirds of its net contribution, the difference between what it had paid into the Community and what it received back in the form of subsidies and regeneration grants. It was immensely popular in Britain. It was one of three ‘victories’ which earned Thatcher the reputation of being the Iron Lady, others being the miners’ strike and the Falklands War.

But the French president, François Mitterrand, was among those who believed that she could have struck a better deal, if she had been more aware of what her EEC colleagues were trying to do. The Community was growing in size and ambition. Spain, Greece and Portugal were about to join. The European Space Agency was recently established. Britain should have played a pivotal role in such developments, winning investment and influence. Thatcher was behaving like someone sitting with her colleagues in a restaurant, haggling over the bill, but deaf to the rest of the conversation.

In the UK, the size of the contribution had been a source of contention since the week-long debate in October, 1971 which led to British entry. This was by far the best-informed of the many debates that preceded and followed it. The terms of entry were known. MPs had discussed the details with their constituents during the summer. The draft agreement that the prime minister, Edward Heath, and Sir Alec Douglas-Home, his foreign minister, had struck with the EEC was more precise than any previous attempt under Macmillan and Wilson. There were rebels in both main parties. Tory members were allowed a free, un-whipped, vote, Labour MPs were not, and the motion was passed by a majority of 356 to 244.


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Denis Healey led for the Labour opposition, concentrating on the matter of money. Britain would be paying 25% of the Community’s income and receiving only 6% in return. Much would be spent on the Common Agricultural Policy, which in 1985, amounted to 70% of the EEC’s total budget. In Britain, CAP was an object of scorn with stories of wine lakes and melting butter-mountains. Michael Foot, an ardent anti-European, was scathing. Why should we join a club whose main purpose was to support the inefficient French farmers?

On the second day of the debate, the first voice was raised in support for the CAP. John McKie, MP for Enfield, pointed out that, in the mid-1950s, there had been more than 22 million small farms within the Community, chronically poor, which had been reduced to some 10 million holdings, relatively prosperous, which could afford to buy their own tractors. CAP’s first aim had been to feed the many millions, left starving by the Second World War, and to ensure that the EEC would always be self-sufficient in food supplies.

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CAP had taken into account the mistakes made in the Soviet Union, with its collective farms, and in Britain, where the landscape was transformed during and after the war. The hedgerows had been uprooted. Huge new fields had been created and there was a careless use of chemical fertilizers. CAP tried to preserve, where possible, the quality of the countryside. But it confronted another problem. How could the wealth of the industrialised Europe be spread around to benefit its rural regions, the 1980s equivalent of Boris Johnson’s levelling up? Farming was by its nature unpredictable. There were gluts, famines, and animal infections. Global warming was a fresh cause for concern.

This ambitious project in social engineering began by subsidising farmers for what they produced, but soon acquired other functions. It sought to regulate abattoirs, control the use of pesticides and monitor mad cow disease, first detected in the mid-1980s. It should have been in the interest of British farmers, as of everyone else, that these matters were handled at a community level, for the threats were shared. But the UK imported many food products from other parts of the world, including the Commonwealth and the US. These would face similar rules and higher tariffs.

In North-South: a Programme for Survival (1980), a report from a commission, led by the former West German chancellor, Willy Brandt, the concentration of power and wealth within industrial countries from the north, and the lack of it among the impoverished regions of the south was outlined. Heath was one of his contributors. Brandt, a Social Democrat, feared that this split would lead to wars, mass migration and the degradation of the planet. He hoped that a more united Europe, bringing back those countries lost to Russia in the east, could act as a force for good, healing the wounds left by its destructive 20th century history.

His views were shared by the French finance minister, Jacques Delors, who became the new president of the European Commission in 1985. Delors reduced the dependence of the farming industries upon subsidies. He was a Social Democrat, but believed in the market economy, up to a point. CAP’s share of the EEC’s budget went down from 70% to 40% during his period of office. At the same time, he widened CAP’s remit to include measures to combat climate change, to protect the environment and to develop new sources of income, such as tourism, which supported the rural economy.

Few of these measures should have alarmed farmers in the UK, except that they were introduced by what some still regarded as a foreign power. Elsewhere in the Community, the reformed CAP was greeted with enthusiasm. It would be cynical to suggest this was solely for financial reasons. Poets and painters of the Romantic Movement – Wordsworth in England, Mickiewicz in Poland, Pushkin and Chekhov in Russia – inspired a haunting love for their natural landscapes. Their verses were learnt at primary schools, their pictures were hung on cottage walls. Among the right-wing country parties, hostile to immigration, and the mainly left-wing Greens, the aims of the new CAP struck a common chord in their hearts.

Thatcher should have been on their side. She spoke eloquently against the causes of climate change, but ‘modified her position’, or ‘conducted a u-turn’, what you will, later in life. In the battle over the rebate, her relentless stress on value for money seemed limited and materialistic. As Mitterrand predicted, Britain drifted into the slow lane of EEC expansion, except on that one issue, the free market, which was at the core of her beliefs.

The special terms of the annual rebate was repeated nowhere else and caused resentment among those poorer countries from central Europe, seeking to join. The UK was once the ‘sick man of Europe’. As the result of membership, it claimed to be among the richest in the world. And yet it denied to others the special terms that it had received for itself.

Successive PMs – Major, Blair and Cameron – came under pressure to get rid of this exceptional treatment. The rebate was an anomaly, an accident of history, a contorted formula that satisfied nobody. But, in the UK, it was politically very popular. It appealed to those people (naming no names) who believed that the best way to deal with Johnny Foreigner was to stick to your guns and wait for them to surrender. God created the English Channel, according to an interview given by Thatcher to US journalists, to protect the freedom of the individual from the practices on the continent, a very large whiff of Anglo-Protestantism. December 31, 2020, will put these ancient beliefs to a timely test.

John Elsom is the author of State of Paralysis – A Cultural History of Brexit (The Lutterworth Press, 2019)

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