British concession is first move in fight for £2bn EU rebate

Britain has said for the first time that it might agree to share with other countries the right to claim an annual EU budget rebate.

The announcement marks the first skirmish in the politically-sensitive battle over the future of the UK's annual rebate, worth about €3bn (£2.1bn) a year, ahead of talks on how to fund the EU after 2006.

But it also represents the first sign of flexibility in Britain's position on an issue that has assumed huge symbolic importance for politicians.

Under a scheme being drawn up by the European Commission. At least four other big contributors to the EU could be eligible for a rebate.

Won by Margaret Thatcher in Fontainebleau in 1984, after she demanded some of "our money back", the rebate is designed to compensate the UK for paying much more into the EU pot than it gets from the Common Agricultural Policy.

In recent years, pressure has mounted for a rebate for other countries that feel hard done by. Germany, the Netherlands, Austria and Sweden, which are also big net contributors, are campaigning for the benefits of the rebate system to be shared.

Meanwhile the 10, mainly ex-Communist, countries that join the EU next year are deeply unhappy at having to make a contribution towards the rebate as every EU country has to.

The rebate is guaranteed until the end of 2006 when the next financial settlement begins. But before the negotiations on the next spending period, the European Commission is proposing a more generalised system.

A Commission spokeswoman said that, under the plans, "all countries having a major imbalance [between contributions and receipts] or an excessive imbalance could benefit as soon as their imbalance goes above a certain threshold".

A British Government statement said it recognised that "some other countries have problems of excessive contributions" and added: "We are happy to consider options to address these problems providing that the UK's current position is fully protected."

Whether, and by how much, the UK's position would worsen under a generalised system depends on details which have yet to be thrashed out.

The Treasury argues that Britain's net per capita contribution to the EU is almost three times that of France, despite the two nations having broadly similar levels of prosperity. It says that, without the rebate, the UK would have paid about 12 times more to Brussels than France, either on a per capita or an absolute basis.

Most diplomats see the new signs of flexibility as sensible positioning before the crucial negotiations on spending. The financial negotiation, which will have to be concluded in 2006, will be decided by unanimity, which means Tony Blair can veto any settlement deemed to be unsatisfactory.

Nevertheless the stance marks a change of tack from Mr Blair who, during the previous financial negotiations in 1999, argued that the rebate was sacrosanct and non-negotiable.