With last night’s release of new numbers by Cypriot negotiators, the debate over the EU’s seven-year budget is beginning to heat up, with battle lines hardening over whether – and how much – funding should be cut from the European Commission’s original €1,033bn proposal.

In today’s dead tree edition of the FT, Josh Chaffin points to the growing debate over rebates – one that could have a direct impact on the country EU officials say has been the most difficult negotiator in recent rounds, the UK. Whether the issue is being raised now in an attempt to threaten Britain into softening its hard-line insistence on a budget freeze is unclear.

What is clear, however, is that the European Commission is going for the jugular. In an 8-page paper circulated by the Cypriot presidency last week, and cited in Josh’s story, the European Commission makes a direct attack on Britain’s sacrosanct rebate, saying Britain’s “unique treatment….seems no longer warranted”. We’ve posted a copy of the document here.

The chance of Britain losing its rebate – one of the totemic achievements of Margaret Thatcher’s tenure as prime minister – are slim, particularly since its embedded in EU laws that are nearly impossible to change. But the European Commission appears to be giving it the old college try. It’s made the argument before, but circulating the paper on the eve of a high-stakes summit, with the threat of a British veto looming, is sure to raise the stakes.

In its “non-paper”, the Commission argues the circumstances under which Thatcher won the rebate, during a 1984 EU summit in the French town of Fontainebleau, have changed. Then, Britain was relatively poor and its net contribution to the EU budget was large:

In particular, the unique treatment of the UK in comparison with other net contributor Member States seems no longer warranted, neither from the point of view of the structure of the EU budgetary expenditure and revenue, nor from the point of view of relative prosperity. The principle of equity requires equal treatment of Member States in a comparable situation of excessive net balances in relation to their relative prosperity and the issue of budgetary imbalances therefore requires as far as possible a harmonised horizontal approach.

On the top of page five of the paper, the Commission makes this abundantly clear. In one chart, it notes Britain is now seventh among the EU in “prosperity”, and is eighth among countries in net contribution to the EU budget – behind countries like Denmark, Italy and France, all of which don’t get a rebate.

The Commission argues the Fontainebleau deal was predicated on rebates going only to countries “with an ‘excessive’ budgetary burden in relation to their relative prosperity” and implied wealthier countries should pay more, not less. It argues the current rebate system “would clearly not fulfil these criteria and would result in an unfair situation”, and it singles out Britain as the most egregious example, particularly since one of the original reasons for the rebate – helping with rural development – is no longer part of the EU budget:

For the same reason a simple continuation of the UK correction would not be possible. In addition, the differentiation made in the calculation of the UK correction between a former guidance and a guarantee part of rural development – a prerequisite for the calculation of the UK correction in its current form – will no longer exist in the next Financial Framework.

In the UK, thems fightin’ words. Coming at a time when David Cameron is openly mulling a veto of the entire budget at next month’s EU summit, it appears certain to intensify the fight.

Get alerts on World when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Commenting on this article is temporarily unavailable while we migrate to our new comments system.

Note that this only affects articles published before 28th October 2019.

Follow the topics in this article