George Osborne defends claim of halving £1.7bn EU budget surcharge

George Osborne insisted he got a good deal for Britain

George Osborne has defended his claim that the UK's £1.7bn EU budget surcharge has been halved, after he was accused of "smoke and mirrors".

The UK will pay £850m in two interest-free sums next year, instead of £1.7bn by 1 December, after an EU rebate due in 2016 was apparently brought forward.

The chancellor said there had been "real doubt" that the rebate would apply to the surcharge.

Labour's Ed Balls said the deal had not saved UK taxpayers "a single penny".

Other European finance ministers said Britain had not received a discount.

But speaking on Radio 4's Today programme, Mr Osborne said it had not been clear before talks in Brussels on Friday that the rebate had been going to apply in full.

He added: "The truth is we have achieved a real win for British taxpayers."

'Trick of accounting'

The UK rebate is calculated on the basis of changes in national income.

Rebates are normally paid in arrears, but BBC Europe correspondent Chris Morris said Britain had won a concession meaning the money would now be paid in the same year the money was due.

The UK had been due to get a 1bn euro rebate in 2015-16 but it will now be allowed to bring that forward to the second half of 2015 to reduce the surcharge.

It is thought the 2016 rebate will be smaller as a result, but it is not clear by how much.

Mr Balls, the shadow chancellor, said the rebate "was always going to apply" and accused Mr Osborne of "smoke and mirrors".

He told BBC News: "There was a clear statement from the budget commissioner on 27 October that the rebate would apply.

"The fact is that for all the bluster we are seeing from the chancellor, his claim to have secured a good deal is completely unravelling today.

"Two weeks ago the prime minister was telling us this was an outrage and he wasn't going to pay and he was going to get the bill down.

"It's now been established overnight there has not been a single penny of savings on that bill."

The leader of the anti-EU UKIP party, Nigel Farage, said Mr Osborne's deal was "a trick of accounting".

He said: "It's a desperate attempt to try and gloss over the fact that the British taxpayer has just lost out very badly indeed."

He said the bill would still cost £1.7bn, adding: "If this is a victory, I'd hate to see what defeat looks like."

'Insulting'

Eurosceptic Tory MEP Daniel Hannan said the government's argument was "insulting".

"If Brussels had come to us and said you are going to have to pay £850m - enough to hire and fund the pensions of 30,000 nurses - it would have caused outrage," he said.

"And what we have done instead is we've pretended that the rebate didn't apply, we've gone up to a much higher figure, we've then reapplied the rebate, come back to the figure that there was all along and claimed a victory.

"I think that is insulting our intelligence."

The surcharge follows an annual review of the economic performance of EU member states since 1995, which showed Britain had done better than previously thought.

The demand sparked anger across the UK political spectrum, with Prime Minister David Cameron insisting the UK would pay nothing by the original 1 December deadline and calling for the overall sum to be renegotiated.

After a four-hour meeting of EU finance ministers in Brussels, Mr Osborne hailed an agreement which he said meant the UK would pay a lower sum in two interest-free instalments in July and September 2015.

Analysis

By Gavin Hewitt, BBC Europe editor

How has the UK reached this figure of £850m?

It has included the figure of the UK rebate which is calculated on the gross national income figures.

The Treasury argues that it was not at all clear that the rebate would have been applied in full and they gained that assurance after intensive discussions with the Commission.

Others argue that the UK rebate for next year was never in doubt and that a rebate which the UK would have got anyway is, in effect, being used to reduce this surcharge payment.

It is the case that these figures were never discussed at the finance ministers' meeting on Friday so the announcement that the UK bill has been halved has been met with some surprise.

EU budget: Devil's in the detail

Dutch finance minister Jeroen Dijsselbloem said: "The UK has... a rebate, which they have had for a very long time and of course this mechanism of rebate will also apply on the new contribution.

"So it's not as if the British have been given a discount."

Mateusz Szczurek, the Polish finance minister, said the talks on Friday had not concerned the "actual amounts" each country would have to pay.

But he said Mr Osborne had convinced his European counterparts that having to pay £1.7bn at "fairly short notice" warranted "a special treatment and a change of rules", and also of the need for "greater transparency" in the calculation of such surcharges.

Prof Iain Begg, from the European Institute at the London School of Economics, said the rebate was always coming to Britain.

He told BBC News: "What would normally happen is that, had Britain paid on 1 December, it would have been £1.7bn this year, and then the following financial year the rebate kicks in, which is the £850m he [Mr Osborne] is now saying he is saving. So the net effect is no change."

'Result for Britain'

Following the Brussels meeting, Mr Osborne said: "Instead of footing the bill, we have halved the bill, we have delayed the bill, we will pay no interest on the bill, and if there are mistakes in the bill we will get our money back.

"We have also changed permanently the rules of the European Union so this never happens again.

"This is far beyond what anyone expected us to achieve and it's a result for Britain."

Asked how this had been achieved, Mr Osborne said the UK's annual rebate from Brussels would be applied in full next year to partially offset the surcharge.

Mr Cameron said reducing the amount paid to Brussels was "good progress, and the chancellor has done well".