Chirac in call for Britain to lose EU rebate

The French President, Jacques Chirac, caused a fierce argumentwith Britain yesterday by demanding the UK dips into the annual £2bn rebate it gets from Brussels to help pay for the EU's expansion.

The call, which provoked a furious reaction from Downing Street, marks the start of a new assault on the British budget rebate, just as EU leaders face crunch talks on Thursday on how to finance the admission of 10 new nations.

Negotiated by Margaret Thatcher in 1984, when she told European leaders "I want my money back", the rebate is intended to compensate the UK for the relatively small amount of income its gets from the EU's Common Agricultural Policy.

Its existence is guaranteed until 2006, and Tony Blair wants it to run well beyond that. But Mr Chirac's comments are a sign of the pressure that will be put on the Prime Minister to agree to its abolition or reduction.

Speaking in Paris, Mr Chirac said the EU's 15 members must examine "all spending", including the British rebate, which he said "is less justified today than previously". Mr Chirac did not specify what timescale he wants for the rethink, or whether he plans to raise the issue at Thursday's summit in Brussels. .

The Prime Minister's official spokesman said the rebate was "absolutely not negotiable" because agreement on its details had been renewed by EU heads of state in 1999. The UK pays more to the EU than it gets back and is the second biggest contributor after Germany, he said.

Mr Chirac's intervention comes as France, which is a big beneficiary of the CAP, faces acute pressure from Germany to agree on a pledge to reduce farm spending. Berlin, the EU's biggest paymaster, is stalling on a plan to subsidise farmers from the 10 countries joining the EU from 2004 to 2006. In exchange, it wants France to agree to curb agriculture spendingafter 2006.

One theory is that France is trying todistract attention from the issue. A Whitehall source said: "We know what Chirac is up to but it won't work. He is on the back foot over CAP reform and he is trying to keep his options open by attacking the British rebate." Michael Ancram, the shadow Foreign Secretary, said: "President Chirac is obviously trying to hide his selfish interest in resisting CAP reform by making the British rebate a smokescreen."

In 2006, however, the UK may have to accept some change to the rebate if it wants reform of the CAP and a more rational formula for funding the EU. Little was achieved during the last negotiations in Berlin in 1999, with the UK refusing to debate the rebate and France obstructing CAP reform.

Farm spending is declining as a proportion of the EU's budget --reducing Britain's case for compensation – and any further changes to agriculture would improve the British position.

There are new political difficulties too: some of the 10 new countries joining the EU have voiced astonishment that they will have to contribute towards the rebate. Poland, where average income is only 40 per cent of the EU average, will have to pay a contribution of €232m (£147m) to Britain in 2004, the first year of its membership.

But the UK remains one of the EU's biggest paymasters. Its net contribution to the EU is normally about £2.6bn, which makes it the fifth biggest contributor after Germany, the Netherlands, Germany, Austria and Sweden. The Government said that without the rebate Britain's payments would be four times higher than the Italian or French contributions.

The Downing Street spokesman said: "There are clearly going to be a number of issues that are going to have to be settled in the context of the enlargement discussions. Reopening the British rebate is not one of them."