George Osborne, the chancellor, has won a tentative agreement to delay payment on the extra €2.1bn contribution the EU is seeking and to use an accounting sleight-of-hand that will allow Britain to pay only half of it next year.
At a meeting with EU finance ministers in Brussels, Mr Osborne was able to convince his counterparts that the full €2.1bn (£1.7bn) should not fall due on December 1, as the European Commission demanded last month.
Instead Britain and other countries hit with an unexpectedly high bill, such as the Netherlands’ €643m, can pay the money in instalments as long as the full bill is paid by September 1 next year.
British officials said they will make the payments in two tranches, in July and September.
As he left the meeting, Mr Osborne also said he had cut the bill in half. But British and EU officials acknowledged that will only be achieved by changing the timing of the normal “British rebate” the UK receives on all payments it makes to the EU.
The rebate on the €2.1bn payment, which will be about €1bn, was originally to be refunded in 2016 – instead, Britain will be able to use that cash to reduce the €2.1bn bill, but its 2016 rebate will be €1bn smaller as a result.
“Today I can say this: instead of footing the bill, we have halved the bill, we have delayed the bill, we will pay no interest on the bill,” Mr Osborne said. “And if there are mistakes in the bill we will get our money back.”
British officials suggested that the €1bn rebate was in doubt before the government’s talks with Kristalina Georgieva, the EU’s new budget commissioner, but Commission officials said this was not the case. “The rebate was never, ever in doubt,” said one Commission official.
“As we all know, the UK receives a rebate on their contribution,” said Ms Georgieva. “In this exceptional circumstance, the payment and the rebate on the payment could converge. In a normal year, they would not.”
The opposition Labour party seized on the accounting trick. “By counting the rebate Britain was due anyway they are desperately trying to claim that the backdated bill for £1.7bn has somehow been halved. But nobody will fall for this smoke and mirrors,” said Ed Balls, shadow chancellor. “The rebate was never in doubt.”
The idea of handing over the entire payment to Brussels at a time of public spending cuts and rising eurosceptic sentiment in Britain is politically toxic for prime minister David Cameron.
Officials involved in the closed-door negotiations between finance ministers said Mr Osborne did not complain about the overall bill. Instead, the debate focused on delaying the payment, which will allow the British government to pay after the general election in May.
The compromise was brokered between Mr Osborne and Michel Sapin, his French counterpart, who had insisted that settling the bills must be completed in 2015. France is due to get a €1bn refund under the Commission’s recalculations and needs the extra cash next year to reduce its budget deficit, which is under scrutiny by Brussels.
“What I support is that Great Britain and other EU countries have until 2015 to pay, with the first of September as the limit, for very understandable reasons,” Mr Sapin said.
Both the instalment plan and the change in timing of the British rebate must still pass legal scrutiny in the Commission, which has been asked to draw up the formal proposal next week. Under the outlines of the instalment scheme, it would only be invoked if the total adjustment to EU payments exceeds €5bn; the total change this year, including the €2.1bn British bill, is €9.5bn.
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