The budget is central to EU decision-making and politics. The EU budget is the EU's principle source of funding and, although it is comparatively small, gives the organisation independent political power. Budget negotiations deal with sensitive topics such as the Common Agricultural Policy (CAP), structural funds and regional aid, over which members are often fiercely split, therefore it is often a focus for disagreement amongst member states. The budget raises questions about how the EU institutions themselves operate: it is at the centre of arguments about how far the EU should act as a supranational government and about how accountable its largely unelected bodies are with public money.

Under the Treaty of Rome (1957), the budget was to be made up only of contributions from member states. However, in the 1970s, reflecting the expansion of the organisation's supranational roles, a new budget model was created with the EU having its own resources, which are based on member states' sales, agricultural and customs taxes. This change increased the political scope of the European Community and made the budget much more important. During the 1970s and 1980s, the budget was a very controversial issue. In 1984 this came to a head when Britain, which was paying more into the EU budget than it got out, demanded some of its money back as a rebate. Although this meant that Britain got a better deal, the EU budget continued to grow rapidly, with the CAP and payments to poorer member countries like Ireland, Spain, Portugal and Greece being particularly expensive.

In the late 1980s, a new budget model was developed to reduce conflict, with the budget being agreed for a seven-year period, rather than annually. Meanwhile, in the 1990s, increasing concern was expressed about how accountable the Commissioners who controlled the budget were. In 1999 this led to the forced resignation of the entire Commission. Although tension over the budget has reduced since then, negotiations over the 2007-13 budget saw old arguments, especially about the CAP, reappear.

Negotiations for the 2014-2020 budget are underway, with the Commission controversially proposing an overall increase of 5% on the previous budget, despite the requests of some member states including the UK, Germany and France, for the budget to be frozen.

Commission plans to change the way in which the UK receives its rebate - from a yearly amount to a lump sum of ?22.8 billion for the period from 2014 to 2020 - were rejected by the UK Treasury in July 2011.

EU budgets are decided for periods of seven years. A budget plan is proposed by the Commission and then debated by the European Council and the European Parliament, both of whom have to vote to agree on the budget. Budget negotiations often last for several years, with most of the discussions taking place behind closed doors between heads of government. Budget negotiations always have to take political concerns into account: Britain and France are especially prone to major disagreements. The principle items of the budget are the CAP, regional policy, foreign policy, research and development, and administration.

• Over the last forty years, the EU budget has grown very rapidly.
• The EU budget for 2011 is €141.9 billion in commitments (€126.5 billion in actual payments) which is a 2.9% increase on the 2010 EU budget.
• The UK will contribute €12.9 billion to the 2011 budget (taking the rebate, expected to be approximately €2.7 billion into account).
• The EU budget is small compared to other government budgets: the 2007-13 budget totals €862 billion while the US budget for 2010 alone is $2,480 billion.
• The EU budget represents 1% of the EU's gross national income.
• CAP remains the largest single budget item, amounting to one third of the total budget.

For

• The central budget allows the EU to pursue its own policy agenda without pressure from individual member states.
• The EU's ability to use the budget to move money from wealthy to developing member states is good for the integration of Europe.
• The budget's long-term planning encourages stability.

Against

• The EU can never have budgetary independence because it always has to bow to pressure from wealthy member states who contribute the most.
• Transferring money is unfair on taxpayers in wealthier nations.
• The budget takes up a lot of time for politicians to agree over relatively small sums of money.

''We cannot run an ambitious Europe of tomorrow on an empty fuel tank... This is not the time to do Europe on the cheap.' - Pat Cox, European Parliament President, 2002-2004

'The UK Government recognises its responsibility - we are prepared to pay our fair share but no more than our fair share.' - Jack Straw, British Foreign Secretary, 2005