Britain plunges EU into massive spending row

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Britain yesterday plunged the European Union into a fierce budget row as it offered to slice €8 billion off the value of the UK's budget rebate over seven years while imposing deep cuts in spending in Eastern Europe.

Under fire from eurosceptics for failing to achieve reforms of EU farm spending, the Government insisted that the value of the rebate would continue to rise from a current average of about €5 billion a year to about €7 billion between 2007-13.

But the proposals met with anger from several quarters last night, being dismissed by Poland's Prime Minister as "unacceptable" and described by the European Commission president, Jose Manuel Barroso, as "unrealistic" and bearing "no ambition at all".

In Britain the Conservative Europe spokesman, Graham Brady, said: "After months of ineptitude and inactivity, Mr Blair has spent the last few days rushing around Eastern Europe trying to find a friend.

"Now, at the last minute, he has come up with these ill-considered and damaging proposals to surrender part of Britain's rebate while getting nothing in return."

Yesterday's spending plan for 2007-13 is an opening bid from Britain, which holds the EU presidency, to kickstart 10 days of haggling ahead of a key summit next week.

Its concession on the rebate proved slightly less generous than expected by many EU countries, although that may leave the UK room for manoeuvre. The package is opposed by a formidable coalition, including new member states such as Poland and old ones like France.

The Foreign Secretary, Jack Straw, said that "there will be no fundamental change in the rebate unless there is a fundamental change in the Common Agricultural Policy".

But Britain acknowledged that without any change in the rebate mechanism, its position would be unreasonably favourable, making one of the EU's richest nations the EU's second-lowest net contributor.

Won by Margaret Thatcher in 1984, the rebate compensates Britain for its relatively low receipts from farm subsidies by giving it a two-thirds refund on its net contribution to the EU.

The Government said that it could increase the rate of the VAT-based contribution that Britain pays to EU coffers. Alternatively some of the spending in the new member states could be taken out of the scope of the rebate, meaning that the UK would get no cash back on some of the costs of enlargement.

Mr Straw said that Britain would still pay €58 billion over the seven-year period, rather than the €79 billion proposed by Luxembourg.

As expected the biggest losers in the British plan are the ex-Communist new member states that joined the EU last year. Their subsidies from the EU's lucrative structural and cohesion funds would be slashed by €14 billion compared with a plan put forward by Luxembourg in June which was rejected by Mr Blair.

As currently constituted the British plan will not win the unanimous backing it needs from all 25 EU nations, but it could form the basis of a breakthrough.