David Cameron is to tell the president of the European council in Brussels that a compromise plan for the EU budget is unacceptable because it includes drastic cuts to Britain's multibillion pound rebate.
The prime minister, who told MPs on Wednesday that he would not agree to any further cuts to the €3.6bn (£2.9bn) annual rebate, is to raise the highly sensitive matter at the start of Thursday's meeting with Herman Van Rompuy.
British sources fear there will not be a breakthrough at the summit, which could last into the weekend, as two core groups of countries line up to reject a proposal by Van Rompuy to cut the European commission's planned €1,053.2bn budget to €973.2bn.
Britain accepts that the Van Rompuy plan, which covers the "commitment ceiling" akin to a credit card limit, represents a substantial cut on the original commission proposal. Source say Van Rompuy has acknowledged Britain's demand for an inflation freeze in the budget which will cover the years 2014-20.
But Britain is concerned by his plan to ask every EU country, including Britain, to contribute to the UK rebate. Sources believe this could cut the rebate by as much as 25%.
Paris has rejected the Van Rompuy proposal out of hand on the grounds that it would cut €25bn from the Common Agricultural Policy (CAP) which benefits France. Poland and Spain, beneficiaries of structural funds which fund infrastructure developments in poorer regions, have also rejected the compromise.
Cameron showed he would fight hard to retain the rebate when he was asked on Wednesday by the Tory MP David Nuttall to give a commitment that he would not agree to further reductions. "I can certainly give [you] that assurance," the prime minister told Nuttall.
"The rebate negotiated by Margaret Thatcher is an incredibly important part of Britain's position in Europe and making sure that we get a fair deal. It is absolutely extraordinary that the last government gave away almost half that rebate and we have never heard one word of apology or regret for the fact that however hard we fight in Europe – and I will fight incredibly hard this week for a good deal – they have cut away our footing by giving away half the rebate."
Tony Blair agreed to significant cuts to the rebate when he chaired the last seven-year budget negotiations during Britain's EU presidency in 2005 after the expansion of the EU into eastern Europe the previous year. Without the changes, Britain would have become one of the EU's largest net beneficiaries, paid for in large part by the new member states whose accession was the realisation of Thatcher's dream of enlargement.
Cameron's decision to signal that he planned to fight hard to retain the rebate did not cause much surprise in Brussels.
Some interpreted his intervention as cover for a possible climbdown by Britain on the overall level of the EU budget. He wants that to be subject to an inflation freeze, but has acknowledged that Britain's net contributions will rise regardless of the outcome of the negotiations because the addition of 12 new member states since 2004 means that rich countries such as Britain will have to contribute more to the EU.
Cameron is likely to have to give ground on his demand for Van Rompuy to go further in his cuts by proposing a lower than expected "payment ceiling" – the cap on what the EU will actually pay out. This is seen as highly unlikely.
French officials are letting it be known that they expect Van Rompuy to increase CAP spending while maintaining the same overall level of cuts to the original European Commission proposal. Any increases in CAP spending lead to automatic increases in Britain's rebate.
Paris is also indicating that it expects a plan B to kick in at the summit in which Van Rompuy declares that he cannot broker a deal and he will summon EU leaders to reconvene next year to discuss the budget. Van Rompuy's officials insist there is no plan B.
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