UK distances itself from plan to change EU rebate

Farming absorbs the biggest chunk of EU spending with CAP taking up 29% of the budget

The government has distanced itself from proposals to change the way the UK gets its rebate on its contributions to the European Union (EU).

Under European Commission plans, the annual rebate would be replaced by a lump sum payment of £22.8bn for the period between 2014 and 2020.

Brussels says the current rebate system is complex and distorts EU spending.

The Treasury said the rebate, agreed by Margaret Thatcher in 1984, was "justified" and it would stand firm.

The rebate - negotiated by the former prime minister at the Fontainbleau summit - has reduced the size of the UK's contribution to the EU budget over the past 25 years by billions of pounds.

'Original principles'

It was negotiated on the basis that although the UK was one of the largest financial contributors to the EU, it received a relatively small proportion of farm subsidies through the Common Agricultural Policy (CAP).

The size of the rebate fluctuates annually and is calculated by Brussels on the basis of UK contributions and spending it gets in return.

It is forecast to be worth about £2.7bn in 2011 and 2012, rising to £4bn in 2014 and £4.6bn in 2016.

But, as part of the EU's proposed financial framework for 2014-2020, the Commission wants to reform the way the rebate is paid.

In return for receiving a six-year lump sum payment in 2014, the UK would be asked to accept real-terms cuts in the rebate every time there was an increase in the EU budget.

The "offer" comes at a time when the government is seeking to push through more than £80bn of public spending cuts by 2015 in order to eliminate the deficit in the public finances.

"Over the last 30 years the UK rebate has dominated EU budget negotiations," president of the Commission - the EU's executive arm - Jose Manuel Barroso told the Sunday Times.

"We want to go back to the original principles behind the 1984 agreement that established the rebate, which said that "any member state sustaining a budgetary burden which is excessive in relation to its relative prosperity may benefit from a correction at the appropriate time".

While he accepted that budgetary discussions would be "particularly challenging" in the current climate of economic insecurity and belt-tightening, Mr Barroso said the plan was "balanced and forward-looking".

Budget battle

Protecting the rebate has been seen as a priority for successive governments and for many eurosceptic MPs is regarded a pre-condition of the UK's continued membership of the EU.

Critics have said the new proposal could ultimately result in the UK becoming the largest contributor, in terms of national income, to the EU of any member state as the rebate would not be linked to the size of UK contributions nor to inflation.

The rebate "offer" comes at a time of a fierce battle between Brussels and member states - led by the UK and France - over its budget.

The EU has proposed a 5% increase in its spending in 2011-2012 but opponents say this is "unrealistic" and at a time of national cutbacks the budget should be frozen.

The Treasury said the proposed budget increase was "too large".

"It is not compatible with the tough decisions being taken in countries across Europe," a spokesman said.

And he added: "Britain's rebate is fully justified and we are not going to give way on it."