Treasury rejects EU move to scrap Britain's rebate

The Treasury has angrily dismissed calls from the European Union for Britain's EU Budget rebate to be abolished. A spokesman for the Chancellor said: "The UK abatement remains fully justified. It's a matter of fairness."

"Without the rebate, the UK's net contribution as a percentage of national income would be twice as big as France's, and one-and-a-half times bigger than Germany's.

"This is because of expenditure distortions from policies such as the Common Agricultural Policy (CAP), which still accounts for more than 40 per cent of the EU budget."

The row blew up after the European Commissioner for the Budget, Janusz Lewandowski, suggested to a German newspaper that the time had come to end the rebate, famously won by Margaret Thatcher in 1984, when the then prime minister told startled fellow European leaders: "We are simply asking to have our own money back."

The rebate was worth €3bn (£2.5bn) this year, down from €6bn in 2009, under a deal with the Blair government in 2005. Indeed, over the next few years the British contribution to the EU budget will almost treble.

According to figures published by the Office for Budget Responsibility, the UK's net contribution will rise from £3bn in 2009 to £8.2bn by 2015. At a time when many government departments will be asked to make cuts of up to 40 per cent, this is probably the area of public spending that will rise the most over the life of the Government.

Always a contentious issue in Conservative circles, the re-ignition of this argument may help David Cameron to rally his own party if, as seems likely, he chooses to oppose the move.

Britain retains its power of veto over financial issues, and a significant alteration in the rebate seems unlikely. It remains totemic for the Conservatives, and Mr Cameron would be risking much if he sought to "go soft" on the issue.

The rebate amounts to roughly two-thirds of the difference between what Britain contributes and what it gets from the EU. Mr Lewandowski said: "The rebate for Great Britain has lost it original justification. Per capita income in Britain has risen substantially since the 1980s."

The commissioner said he was expecting "very tough negotiations" in the coming months over the EU's £110bn budget for the period 2014-2020. He described himself an "honest broker" in the discussions.

A quarter of a century ago, when the UK won its argument for a rebate, Britain was one of the poorer members states in per capita terms, but was disadvantaged because of the structure of the EU's finances, as her farmers received relatively little from the EU's biggest spender, the CAP.

Economic progress since then has pushed Britain up the prosperity league, while the CAP has been reformed so it now accounts for 40 per cent rather than 70 per cent of EU spending. Most of the new entrants to the east, such as Bulgaria and Romania, are also much poorer than the UK.

The budget commissioner Mr Lewandowski, a Polish economist, is no stranger to controversy. Recently, he suggested the EU should gain powers to raise taxation in member states on its own account, for example through green levies, rather than relying, as now, on a share of national VAT receipts, a proportion of GDP and import duties. That idea was knocked back by a powerful alliance of the UK, Germany and France.

However, Mr Lewandowski's views on the British rebate have echoes in Paris, where the "chèque Britannique" and defence of the French countryside are equally emotive themes.