EU budget chief sparks row over British rebate billions

(BRUSSELS) - Europe's budget chief sparked a fierce row with Britain on Monday over the 'Thatcher rebate' which sees billions returned to London in lieu of farm payments to France and Germany.

"The rebate for Britain has lost its original justification," European Union budget commissioner Janusz Lewandowski told German business daily Handelsblatt, arguing that income per capita in Britain has risen substantially since 1984 when the rebate was negotiated.

"My role in this business is as an honest broker," he added in anticipation of a vigorous defence from London.

The British government did not shirk the issue, telling the Polish official that he was barking up the wrong tree as Brussels bids to rejig its finances for the years through to 2020.

"The UK abatement remains fully justified. It's a matter of fairness," said a British government spokesperson.

"Without the rebate, the UK's net contribution as a percentage of national income would be twice as big as France's, and one-and-a-half times bigger than Germany's.

"This is because of expenditure distortions from policies such as the (Common Agricultural Policy), which still accounts for more than 40 percent of the EU budget."

British Treasury figures put its rebate for this calendar year at 3.1 billion pounds (3.7 billion euros or 4.8 billion dollars) and around 26 billion pounds for the 2007-13 budget cycle as a whole.

Using 2010 prices, London calculates that Britain's 75-billion-euro payment into the EU pot over that seven-year period falls to 38 billion euros after the rebate -- a huge sum at a time of deep and unpopular cuts to public services across England, Scotland, Wales and Northern Ireland.

The issue has returned to the agenda as Brussels seeks to find its own cuts in straitened times, and grants to poorer regions of Europe in the form of so-called 'cohesion' funding are being even more heavily targeted in heated negotiations just over next year's budget.

Then prime minister Margaret Thatcher was infamously caricatured as hitting fellow EU leaders of the day over the head with her handbag when she won the argument more than a quarter of a century ago.

She wrung the concession out of fellow leaders on the grounds that a large slice of EU money was used for farm subsidies from which did not benefit London.

A European Commission spokesman said that Lewandowski had "just stated his personal opinion," adding: "I don't think it's the commission's view on this.

"Never ever did he actually call for the end of the UK rebate."

Britain is leading the charge for deeper spending cuts in Brussels throughout the bloc's next major budget cycle from 2014-2020.

Last month, the 27 EU member states recommended a 2011 budget of 126.5 billion euros, more than 3.6 billion euros less than the amount sought by the commission and an almost identical figure to the London rebate.

The EU budget now goes to the European parliament, with a conciliation process expected to be invoked if the final figures are to be produced in time for an October deadline.