November 7, 2014 / 8:43 AM / in 3 years

Britain says halves EU budget bill, critics cry foul

BRUSSELS (Reuters) - Britain claimed victory on Friday in a budget battle with the European Union, saying it would pay only half of what Brussels had demanded, but EU officials said payment had merely been delayed and euro-sceptic critics accused ministers of deception.

Britain's Prime Minister David Cameron speaks on high speed rail link HS2, at the launch of the HS2 report, in Leeds Civic Hall, northern England October 27, 2014. REUTERS/Lynne Cameron/Pool

“We have halved the bill, we have delayed the bill, we will pay no interest on the bill,” Britain’s finance minister, George Osborne, said as he left a meeting with his EU peers.

“The bill, instead of 1.7 billion pounds, will be around 850 million pounds,” he told reporters.

Osborne left officials to explain that the reduction in the surcharge of 2.1 billion euros caused by delaying payment from Dec. 1 until next July and September. The two installments will be offset by an annual rebate that London has long received on its contribution to the EU budget.

The dispute, which has escalated as Prime Minister David Cameron struggles to fend off anti-EU rivals before an election in May, began last month when a review of national income data going back over a decade found Britain had underpaid its share and would have to pay in 2.1 billion euros by Dec. 1.

Cameron, surprised by the figures during a summit in Brussels two weeks ago, refused to pay and won sympathy from fellow leaders over the size of the short-notice demand, on which interest penalties would be applied for late payment. But after promising the British parliament he would pay “nothing like that amount”, the prime minister faced a political conundrum as EU states insisted the sum be paid in full.

Kristalina Georgieva, the EU budget commissioner, told a news conference the historical adjustment to national income meant Britain would still have to pay the additional amount it owed but that would be offset by a similarly increased rebate.

“As a result of the adjustment, the UK has to pay more but also as a result the UK rebate will go up. Preliminary calculations show it will be around 1 billion euros,” she said of the increase in the rebate next year when payments are made.

Jeroen Dijsselbloem, who chairs meetings of euro zone finance ministers, said Osborne had not negotiated a cut in Britain’s payment, adding: “This is the application of a very old agreement negotiated by (then-prime minister) Margaret Thatcher, that Britain gets a certain discount. No discount has been awarded.”

“NOT A PENNY SAVED”

Cameron’s euro-sceptic opponents seized on what some saw as an effort to massage the figures: “Osborne trying to spin his way out of disaster,” tweeted UK Independence Party leader Nigel Farage, whose party is riding high in opinion polls.

The opposition Labour party also lambasted Cameron and Osborne for “trying to take the British people for fools” by saying that Britain was paying less. “Not a single penny has been saved for the taxpayer,” said Labour’s shadow finance minister Ed Balls.

The rebate on the 2.1 billion-euro payment, worth some 1 billion euros, was due to be refunded in 2016. Britain will now get the money ahead of time, allowing it to claim it is paying less.

Asked why Osborne was presenting the application of the rebate - an automatic annual process - as a success for his negotiations, British officials said it had not been clear to London that the rebate would apply to the surcharge. It was also unusual to pay out the rebate in the same year as the payment.

Cameron’s critics, however, were unimpressed.

Daniel Hannan, a eurosceptic from Cameron’s Conservative party in the European Parliament, tweeted: “The EU sticks us with a bill. Ministers double it, apply the rebate, return to the original figure and claim victory. We’re meant to cheer?”

Cameron has said the demand for payment made it harder for him to campaign for Britain to stay in the EU in a referendum he wants to hold in 2017 if he is re-elected next year.

The latest YouGov poll on the EU referendum issue showed 41 percent of Britons would vote to leave the EU and 38 percent would vote to stay. That compared with a slight majority in favor of staying in before the budget dispute erupted.

Three decades ago, Britain won a rebate on its budget contributions, which means it gets back two-thirds of its net contribution to the EU budget of the previous year.

London justified that on the grounds that its economy benefited less than founding EU states such as France from the large portion of the budget devoted to farming. In 2014, the British rebate is worth 5.4 billion euros.

Georgieva said new legislation would be passed, applying to all countries, that would allow for payment in installments of unusual budget demands if they passed a certain threshold, possibly equivalent to two months of normal contributions.

Britain’s monthly contribution this year is a little over 1 billion euros.

The dispute is part of the EU’s long-term, 960 billion-euro budget for the 2014-2020 period, an amount that represents a nominal decrease of around 3 percent on the last seven-year budget. Money goes to areas from farming to foreign policy and Britain and its EU partners agreed to it in February last year.

EU countries review the budget on an annual basis. Britain’s surprise bill is part of London’s 2014 contribution, which does not change the overall size of the budget but means some countries pay less because Britain pays more.

That reflects a review of national statistics across Europe and in particular a larger than previously estimated rise since 2002 in the contribution of non-profit organizations - including clubs, churches and universities - to the British economy.

Additional reporting by Jan Strupczewski, Alastair Macdonald and Francesco Guarascio in Brussels and Guy Falconbridge, William Schomberg and Kylie MacLellan in London; Editing by Toby Chopra, Gareth Jones and Larry King

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