UK concessions on farm reform fail to win over EU

Tony Blair's proposals to end the deadlock over the EU budget provoked strong opposition from eastern European nations even though he offered to cut Britain's rebate by about a fifth.

Under fire at home for his pledge to offer concessions over the rebate without concrete reforms on farm spending, Mr Blair faced direct criticism from leaders in central and eastern Europe at talks with them in Budapest yesterday. However, behind the scenes, there was some optimism that the British proposals could lead to a breakthrough at a crucial EU summit in Brussels in less than two weeks' time.

Under the plans the UK's annual rebate, worth around €5bn (£3.3bn) a year, would be cut and Britain's net contributions to EU coffers would be similar to that of France and Italy. The rebate would be applied to all spending inside the old 15 members of the EU, all agriculture spending in the new 10 nations and to a proportion of the rest of the expenditure there.

Mr Blair himself increased the pressure on the 10 new members of the EU to accept a budget deal which will mean a 10 per cent reduction in the amount of money they are allocated in EU subsidies.

After talks with leaders of Hungary, Poland, the Czech Republic and Slovakia, Mr Blair warned that there might be no budget deal before 2007, when the new settlement is due to start, if EU leaders do not reach agreement at their Brussels summit on 15-16 December.

"If there is no agreement now, I think it's unlikely we will get an agreement under the next two presidencies," he said. He conceded that it would be "difficult" to secure a deal this month.

That sentiment was echoed by the Hungarian Prime Minister, Ferenc Gyurscany, who said: "Today we are far from an agreement. We should not support any decrease in the cohesion funds.The price cannot be paid only by the new countries."

But the Polish Prime Minister Kazimierz Marcinkiewicz, whose country stood to lose some €6bn under the British plan and who said Poland would not accept "a bad budget", sounded cautiously optimistic. He said: "We needed this conversation [with Mr Blair] - it was very tough but very important. In my view we are nearing a proposal which is not yet ideal but much better than [Britain's] informal proposal." Britain argues that a proportion of the planned subsidies for the east will never be spent under EU rules and it may sweeten the pill by making a smaller pot of cash more easy to spend. Though a number of countries now accept the logic, the idea is extremely difficult to sell in eastern Europe.

Downing Street appeared to suggest that the proposals could lead to a cut in the rebate's value of between 12 and 15 per cent - but later it withdrew the figure, saying the British plan would remain under wraps until Monday. The actual figure is expected to be higher and worth something between €1bn and €1.5bn a year.

British officials insisted that real progress had been made during Mr Blair's two days of talks in eastern Europe. The Prime Minister's official spokesman urged the 10 new EU countries to be "hard-headed", asking: "Is it in their interests to postpone the possibility of a deal and therefore them getting the money for maybe one, maybe two years? Or is it in their better interests to get the money now?"

Mr Blair found himself under attack from Britain's Eurosceptic-dominated newspapers and the Tory opposition. But he said he could not govern "according to the headlines" and insisted he had not broken his promise to the Commons in June by "surrendering" the rebate without securing CAP reform. He said: "We are not going to be giving up the rebate. The rebate on any basis, on any proposal, will grow - not diminish." British officials admitted that, although it would rise in cash terms, it would form a smaller slice of the EU cake as the overall budget increased.

Mr Blair said he had always promised Britain would pay its "fair share" of EU enlargement. He conceded that CAP reform was "a very tough issue" for French public opinion but appealed to France to give ground at this month's world trade talks in Hong Kong, saying that failure would be "disastrous for the world economy."

Pressure for wide-ranging changes to the CAP came from the Chancellor Gordon Brown, who published a document attacking its current size and workings. In a research report, the Treasury said that the CAP hurt consumers, particularly the poorest in society, fuelled inflation, slowed economic growth and led to billions of pounds of wasted taxpayers' money.

It will be seen as a veiled attack on the Prime Minister's decision to offer to cut the rebate without winning any concessions on reform of the CAP.

The document said the hurt for consumers was running at €100bn a year, half coming from higher taxes and the rest in higher prices. The report said that within 15 years European farmers should operate without subsidy or protection, be more environmentally and socially sensitive and produce to high levels of animal welfare.

Michael Howard, the Tory leader, said the Prime Minister had "squandered a tremendous opportunity" for wide-ranging reform of the EU budget. Sir Menzies Campbell, foreign affairs spokesman for the Liberal Democrats, said Mr Blair's "bad hand is largely the fault of his own Government".