November 14, 2012 10:50 pm

UK rebate under renewed attack from Europe

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Britain’s EU rebate – or refund – came under fresh attack from Brussels on Wednesday, raising the stakes for David Cameron ahead of next week’s summit on the bloc’s long-term budget.

Herman Van Rompuy, EU council president, tried to broker a deal by proposing a €20bn cut in the seven-year EU budget, but he also put forward a contentious plan to cut the UK rebate – £3.2bn (€3.5bn) in 2010-11.

Downing Street rejected Mr Van Rompuy’s suggestion out of hand that Britain should pay for part of its annual rebate from Brussels – in effect cutting the value of the refund secured in 1984 by Margaret Thatcher.

A British diplomat rejected the idea outright on Tuesday afternoon, saying: “The rebate is fully justified and we don’t support any changes.”

EU officials declined to specify what the financial impact for the UK would be. They defended the change as a way to staunch a growing queue of countries calling for their own rebates. As part of the plan, Germany, which has been exempted from paying for the UK rebate, would also have to contribute.

The latest draft proposal confirms the complexity of trying to secure an EU budget for 2014-20 at next week’s Brussels summit. Mr Cameron is demanding a real freeze in the budget and is threatening to veto any increase.

As a signal of his intent to cut the budget, the British prime minister has proposed scrapping EU regional aid programmes in poor areas of rich countries such as Britain, Germany, France and Italy, repatriating responsibility to national governments.

The move would strip EU cash from areas including Cornwall and Wales, although it might be replaced by national schemes. Italy is fiercely opposed: its government would struggle to replace EU funds currently going to its poorer south.

Overall, Mr Van Rompuy’s draft budget totalled €973bn for the seven years from 2014 to 2020. This exceeds the real-terms freeze demanded by Mr Cameron.

Yet Mr Van Rompuy is hoping that Mr Cameron will be able to sell the proposal to sceptical MPs because it is €20bn less than the current long-term EU budget, and at least €75bn less than an initial request from the European Commission, the EU’s executive arm. “What we are proposing is a real compression,” one official said.

The draft also drew a furious reaction from France because it focused cuts on agriculture spending, including a €13.2bn reduction in farm subsidies from levels proposed by the commission. It also slashed development funds for wealthier regions – a UK wish but something that François Hollande, France’s Socialist president, has been keen to protect.

“We do not accept the proposals that we would cut the [common agricultural policy] by up to €25bn,” said Bernard Cazeneuve, the European affairs minister.

Mr Van Rompuy’s offer represents a final bid before heads of government arrive in Brussels next Thursday for a climactic moment in one of the bloc’s most bruising and complex negotiations.

They have strained for more than a year to overcome a roughly €200bn difference in negotiating positions, with Mr Cameron threatening a veto. He has won support from Sweden and the Netherlands.

In a sign of the pre-summit jostling, 14 prime ministers from eastern and southern Europe rallied in Brussels on Tuesday to support a commission proposal, which amounted to as much as €1.091tn, including off-budget items.

Judged similarly, Mr Van Rompuy’s offer comes to €1.011tn. While below the commission, it is still about €50bn more than a German call to cap the budget at 1 per cent of the bloc’s gross income – some €960bn.

The UK position is beneath that but has been difficult to pin down – deliberately so, diplomats say. Rather than others’ focus on “commitments”, for example, Mr Cameron has emphasised the smaller figure of “payments”.

Additional reporting by Hugh Carnegy in Paris

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