Britain rejects plan by Brussels to cut its budget rebate

Britain has rejected proposals to slash the value of its EU budget rebate, signalling the start of a fierce battle over the fate of the annual cheque worth €3bn-€4bn (£2bn-£2.6bn).

Britain has rejected proposals to slash the value of its EU budget rebate, signalling the start of a fierce battle over the fate of the annual cheque worth €3bn-€4bn (£2bn-£2.6bn).

The European Commission approved plans yesterday that would almost double the UK's per capita contribution, in spite of objections from Britain's two European commissioners.

The proposal should form the basis of discussions next year on the next EU funding period which runs from 2007-13. Tony Blair has a veto over the entire spending package, however, the Prime Minister will come under massive pressure to make some form of concession over the rebate, which was won in 1984 at a summit in Fontainebleau at which Margaret Thatcher famously demanded: "I want my money back."

The annual cheque is designed to compensate the UK for the fact that it receives much less from the EU than other nations, such as France, that are big beneficiaries of the Common Agricultural Policy.

But the proportion of the EU's spending directed to farm subsidies has dropped from more than 70 per cent in 1984 to around 45 per cent and is due to decrease further.

The UK has become one of the EU's richest nations on a per capita basis and the bloc has expanded to admit former Communist nations. They, along with all other members, have to contribute to the rebate.

The proposal would cap the amount of money available for the rebate at €7.5bn - roughly what the UK would receive each year in 2007-13 - and share it out among all nations that pay more into the EU than they get out.

As part of yesterday's plan, the EU budget commissioner, Michaele Schreyer, offered a four-year phase-in period worth a total of about €5bn to the UK.

But the British contributions would still rise from 0.25 per cent of gross national income to 0.46 per cent. That would make Britain the joint third highest contributor, after Germany and the Netherlands. Once the transitional period was over, the UK would be the highest payer.

Critics say Ms Schreyer's plan would make one other net contributor - Austria - worse off, while doing relatively little to relieve the burden on the EU's biggest paymaster, Germany.

Chris Patten, the European commissioner for external relations, said he was "deeply concerned that this proposal will set back our ability to argue a positive case for the EU in the UK". British officials accused the Commission of using the rebate plan as a smokescreen for its broader spending proposals. These would see actual payments taking up 1.14 per cent of GNI in 2007-13, as opposed to the current level of 0.98.