The EU’s annual budget amounts to some €130 billion. This is roughly one percent of the economic wealth generated by the member countries each year – or €235 per each citizen per year.

A maximum spending limit is agreed by the member states’ governments and parliaments. The limit is currently set at 1.24% of the Union's gross national income. This corresponds to approximately €293 per EU citizen on average.

The budget covers the spending of all the Union's institutions. It fixes income and expenditure for the year, lists all the activities that are to be funded and sets out the total amounts of money and staff available for each. It also cites how each payment must be authorized.

Each year, the European Commission puts forward a blueprint for the following year’s spending plan. The budget is decided on by the Council and the Parliament. Its use is controlled by the Commission services and the European Court of Auditors. Finally, each year, in a process called the Discharge Procedure, the European Commission and the other EU institutions are accountable to the European Parliament for the use made of the resources at their disposal.

The Commission implements the budget, but the management of each individual project is shared with the member states. All income and expenditure must be accounted for.

So, EU spending is limited by the Treaties and by the maximum spending limit, but also by a multi-annual agreement between the European Parliament, the Council of Ministers, and the European Commission. This agreement contains a "multi-annual financial framework". The current one covers spending plans for from 2007 to 2013.

The biggest slice of the budget – 45% of total spending in 2008 – goes to making the EU economy more competitive and dynamic, and to increasing the cohesion of the EU, i.e. narrowing the gap between richer and poorer member states and regions. Agriculture is another major area of expenditure: in 2008 it took some 32% of the budget. A further 11% of the budget goes to rural development and environment. Administrative costs of running the EU amount to 6% of the total expenditure.

In September 2007, the European Commission launched a public consultation on the future of EU’s funding under the theme Reforming the Budget – Changing Europe. The Commission asked all stakeholders to come up with ideas on: What should be the structure and direction of the European Union’s spending priorities to meet the challenges of the globalised world in the next decade and beyond? What is the best way of providing the resources necessary to fund EU policies?

In November 2008, results of the public consultation were declared. They revealed that the majority of EU member states, NGOs, universities and scientists, social partners, private citizens and companies saw the following as Europe’s biggest challenges, which should be reflected in future budgeting:

• climate change, competitiveness, security of energy supply;
• inequalities between EU’s countries and regions, demographic trends (ageing populations) and external pressures (security threats, migration) were also seen as serious threats.

Effectiveness and efficiency, transparency, flexibility, performance and results were the key words coming out of the consultation.

In September 2010, Commissioner Lewandowski presented the EU's latest financial report, providing concrete details for spending on growth and competitiveness (€44bn), 'external action' including development aid (€10bn), and administration (€7.4bn).