Treasury refuse EU offer to give up budget rebate

Brussels yesterday provoked fury by launching an ‘absurd and ridiculous’ bid to scrap Britain’s £3.5billion EU rebate.

European Commission president Jose Manuel Barroso said the rebate – first secured by Margaret Thatcher and paid in recognition of the raw financial deal Britain gets from Brussels – was hard to justify in the modern world.

The former Portuguese prime minister also defended the European Commission’s bid for a 5 per cent overall budget increase, which would land British taxpayers with a fresh £10billion bill.

He claimed Brussels was keeping a ‘tight rein’ on spending and said the budget proposals recognised the ‘austerity’ of the times. But his extraordinary intervention led to renewed calls last night for David Cameron to veto the EU’s budget demands.

However, the arrangement has come under increasing pressure due to the entry of several poorer countries from eastern Europe and the growth in the UK economy which has made Britain one of the EU's wealthiest states.

Mr Barroso suggested today that he wants future rebates to be calculated according to countries' relative positions at the time the budget is set, rather than making a special case for the UK.

He wrote: ''We want to go back to the original principles of the 1984 agreement that established the rebate, which said that 'any member state sustaining a budgetary burden which is excessive in relation to its relative prosperity may benefit from a correction at the appropriate time'.

''The new system we are proposing, based on a lump-sum reimbursement, would mean that Britain would be entitled to receive a gross amount of 25.2 billion euros from 2014-20.''

Mr Barroso insisted that the Commission's budget proposal for 2014-20 is ''realistic and ambitious'' and dismissed Treasury claims that it will add £10 billion to the UK's contribution over the seven-year period

The proposal to hold the EU budget at 1% of the combined national income of the 27 member states - about £125 billion a year - ''reflects our desire to keep a tight rein on spending in these times of austerity'', he said.

But the Treasury argues that it represents an increase of more than 10% in cash terms - way above inflation.

A Treasury spokesman said: ''The European Commission's budget proposal last week is completely unrealistic. It is too large, is not the restrained budget they claim and is not compatible with the tough decisions being taken in countries across Europe.