This paper analyses the UK rebate on EU contributions and concludes that it creates adverse effects, which greatly reduce the incentive for the UK to play an active role in the development of EU policies. This may to a large extent explain the UK’s traditional semi-detached relationship with the EU. The paper concludes, however, that that there is a strong case for the continuation of a modified system of rebates for a country or countries in the UK’s position. The paper puts forward proposals for a modified system of rebates which would overcome the disadvantages of the present system. The proposed modified system could also be implemented at a level below that of member state: for example, at the level of Scotland within the UK. The paper identifies the advantages of implementing the system at this level.