Treasury rejects one-off EU payment to end rebate

Mr Barroso said the Commission wants to go back to the “original principles” of the deal negotiated by Margaret Thatcher in 1984, which states that any country making a contribution which is out of proportion to its wealth should benefit from a “correction” when the budget is set.

With the next EU budget due to cover the years 2014-20, this could mean Prime Minister David Cameron receiving a massive cheque a year before the general election scheduled for 2015, when Conservatives are thought to be planning tax cuts to create a feelgood mood among voters.

But the proposal received a blunt response from the Treasury, which said simply: “Britain’s rebate is fully justified and we are not going to give way on it.”

Mr Barroso defended the Commission’s proposed budget for 2014-20, which was dismissed by the Treasury as “completely unrealistic” last week.

And he made clear his frustration at the way the UK rebate has dominated budget negotiations over the past 30 years, saying that “almost nobody” understands the system by which it is calculated.

Britain originally obtained its rebate because it made one of the largest contributions to the EU budget but did not receive as much in agricultural subsidies.

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 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 £10bn to the UK’s contribution.

The proposal to hold the EU budget at 1 per cent of the combined national income of the 27 member states – about £125bn a year – “reflects our desire to keep a tight rein on spending in these times of austerity”, he said.

But 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.”