EU warned that talks on the UK rebate will be 'pointless'

Margaret Thatcher Margaret Thatcher negotiated the rebate at a time when farm subsidies made up 70% of the budget

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The UK will not accept any reduction in its rebate from the EU budget, Europe Minister David Lidington has warned.

He said that EU ministers had decided at a summit in Brussels to include the rebate on a list of subjects that would form the basis for negotiations on the EU's long-term budget.

This was "pointless" since the UK would block any reduction to the rebate, Mr Lidington said.

He also opposed the inclusion of a financial-transaction tax on the list.

EU funds are allocated in general terms over seven-year periods, before more detailed spending decisions are reached in the EU's annual budgets.

Talks on how the EU's money is to be distributed between 2014 and 2020 are about to begin in earnest, and ministers at the EU's general affairs council met on 29 May to work out what spending areas would be up for discussion.

Reporting back to MPs in a written statement (pdf), Mr Lidington said he was encouraged by his EU counterparts' focus on growth-promoting policies, and their commitment to bringing "deficit and debt onto a more sustainable path".

'Fully justified'

However their belief that there might be some basis for discussing the rebate and a financial-transaction tax were "less helpful", he said.

"Any changes to the own resources decision, including those required to amend the UK rebate, require consensus among member states," he noted.

"The UK would not agree to any changes to the UK rebate or any new own resources such as a financial transaction tax and therefore their inclusion was pointless."

The EU provides the UK with a refund on a part of its contribution to the EU budget.

The rebate was introduced in 1984, when the UK was the third poorest member of the European Community but on course to become the biggest net contributor to the budget.

The main reason for this was that the UK had relatively few farms, so it got a small share of farm subsidies, which at the time made up 70% of budget expenditure.

The rebate - negotiated by the then Prime Minister Margaret Thatcher at the Fontainebleau summit - has since reduced the size of the UK's contribution to the EU budget by billions of pounds.

In 2005, then PM Tony Blair said the rebate was an "anomaly that has to go", and attempted to link its removal with reform of the common agricultural policy (CAP).

After Mr Blair endured difficult negotiations with his EU counterparts, notably French President Jacques Chirac, he was accused of achieving little in return for his acceptance of a 20% cut in the rebate for the EU's 2007-13 budget.

The European Commission argued in 2011 that the UK should accept a real-terms cuts in the rebate every time there was an increase in the EU budget, and would be be entitled to a lump-sum payment to compensate.

At the time, a Treasury spokesman responded: "Britain's rebate is fully justified and we are not going to give way on it."

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