23 October 2012 Last updated at 14:52

European Parliament clashes with ministers on EU budget

There is a sharp divide between MEPs and governments over EU spending

The European Parliament has rejected the 27 EU governments' position on next year's EU budget, triggering hard bargaining to reach a deal.

In a vote in Strasbourg the MEPs backed the European Commission's call for a 6.8% budget rise for 2013.

An MEPs' report deplored a decision by the Council - the 27 governments - to cut that figure to 2.79%.

The MEPs also adopted proposals on the 2014-2020 budget, ahead of a key leaders' summit next month.

UK Prime Minister David Cameron has promised a "tough" and "rigorous" approach to the budget talks, saying he will exercise his veto if necessary. Budget decisions require the agreement of all 27 member states.

In 2011 the UK's net contribution to the EU budget was 7.25bn euros (£5.85bn; $9.4bn), after the UK's rebate of 3.56bn euros from the EU, according to data from the European Commission.

Mr Cameron has said he has the support of the German, French, Finnish and Dutch governments to oppose any increase in the seven-year budget above the rate of inflation. He says national governments' tough budget cuts, dictated by the scale of the debt crisis, make the case for reining in EU spending all the more compelling.

The Commission, however, argues that the cuts proposed by the Council would harm Europe's growth efforts, hitting research and small firms.

If there is no deal on the long-term budget, the EU's 2013 budget will roll over into 2014 with an automatic 2% rise based on inflation - still more than Mr Cameron wants.

In 2012 the EU budget was 129.1bn euros (£105bn; $168.5bn), a 1.9% increase on 2011.

The Commission says 2013 is the last year of the EU's current seven-year financial period - the time when bills for existing projects have to be paid, hence the need for a budget increase.

Long-term plans

The Commission's proposal for the long-term budget, called the Multiannual Financial Framework (MFF), sets the ceiling at just over one trillion euros, that is, 1.03% of EU gross national income (GNI).

The biggest items of spending, accounting for about 80% in total, are agriculture and cohesion funds - aid for Europe's poorer regions. France is especially keen to maintain agriculture spending, while cohesion is a big issue for the ex-communist countries in Eastern Europe.

The European Parliament's budget committee calls for spending levels for those major budget items to be at least maintained at the 2007-2013 level.

But the MEPs also call for "significant increases" in the budgets for competitiveness, small and medium enterprises (SMEs), sustainable infrastructure and research and innovation. They see those budget areas as growth-enhancing.

New funding scheme

The parliament's lead negotiators in the 2014-2020 budget talks are Ivailo Kalfin, a Bulgarian from the Social Democrat group (S&D) and Reimer Boege, a German from the conservative European People's Party (EPP).

The MEPs' plan includes a controversial call for EU "own resources" - that is, to fund the EU from direct taxation, such as sales tax (VAT), instead of the current system of national contributions.

The UK government is adamantly opposed to the "own resources" proposal, which would scrap the complicated rebates that the UK and some other countries get from the EU.

In the UK's case, the rebate was agreed after former Prime Minister Margaret Thatcher argued that the UK's contributions were disproportionate, as French farmers were benefiting more than UK citizens from EU subsidies. Since then reforms to the Common Agricultural Policy (CAP) have reduced EU incentives to overproduce food.

The MEPs' report says the current system polarises the EU into "two opposing camps" - the net contributor countries on the one hand, and the net beneficiary countries on the other.

The report says the EU budget financing "should return to a genuine system of own resources, as provided for in the Treaty of Rome and all successive EU treaties". It calls the system of national contributions "non-transparent and unfair" and "not subject to parliamentary control at either European or national level".