Prime minister privately acknowledges that Britain's original plan for an EU budget cut is off the table
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As a junior treasury minister last year Justine Greening identified a modest EU budget which Britain has now abandoned. Photograph: Katie Collins/PA
When David Cameron flew into Brussels early on Thursday morning declaring that he would have to fight hard to save the British rebate, EU officials smelt a rat.
The rebate is guaranteed in perpetuity which means it can only be changed with Britain's agreement. EU officials sensed that the prime minister was throwing out some chaff to mask a climbdown over his original plans to secure a real terms freeze in the overall EU budget which will cover the period 2014-2020.
It turns out that the prime minister will both win and lose if an agreement is reached at the summit. Here is how this will happen:
• Lose for Cameron
Britain had originally hoped to limit the EU budget to €885.6bn. This was outlined by Justine Greening, the then Treasury minister, in an explanatory memorandum in July 2011. Greening wrote that Britain wanted:
...a total [MFF] budget size of (7x126.5) €885.6bn (£799bn) in 2011 prices. *
Downing Street has acknowledged that it will not achieve a budget as low as this. The Treasury had calculated the €885.6bn figure by taking the latest available yearly budget figure in 2011 (€126.5bn which was then adjusted for inflation) and multiplying it by the seven years of the current budget period. This runs from 2007-2013. Britain used the "payment ceiling" – the amount of money due to be paid – rather than the "commitment ceiling". This is the cap on payments which is akin to a credit card limit.
Britain now accepts that the budget will be calculated by a different method. This will involve taking the 2011 share of the "payment ceiling" for the current seven year budget as a whole and adding that to the six other years. Britain accepts that this means the overall "payment ceiling" for 2007-2013 – the benchmark for the next budget – is €942.8bn.
• Win for Cameron
If a budget deal is reached, the prime minister will declare victory because Herman Van Rompuy, the European Council president, has proposed a cut in the European Commission's original "commitment ceiling" for the 2014-2020 budget of €1053.2bn. Van Rompuy is saying this should be cut to €973.2bn.
It is understood Van Rompuy is saying that the lower "payment ceiling" should be set at €940bn. Britain is telling Van Rompuy that he must go further. Crucially, however, Cameron accepts that Britain's original plan for a budget of €885.6bn is now off the table.
While this marks a setback, the prime minister will say that he has succeeded in his overriding goal – to achieve a real terms freeze in the budget. He may even say he has met the terms of the recent rebel Tory amendment in the commons for a real terms cut in the budget. This is because the Van Rompuy figure of €940bn is lower than the "payment ceiling" in the current seven year budget (2007-2013) which is €942.8bn.
Cameron will hope that his negotiating skills will be hailed by eurosceptic Tories if a deal is reached. But Nigel Farage, the leader of UK Independence Party who is hoping for a strong result in next week's Rotherham byelection, told the Guardian:
Margaret Thatcher had a huge victory [when she won the UK rebate in 1984]. Tony Blair had a dramatic loss [when he agreed to reduce the rebate in 2005]. David Cameron can't win whatever he does. When Margaret Thatcher achieved a [budget] cut we thought EEC membership was a price worth paying. Now, according to 60% of voters, there is no price worth paying.
* Explanatory Memorandum on document No. 12475/11A Budget for Europe 2020 dated 16 July 2011 quoted in House of Commons Library briefing paper – EU Multi-annual Financial Framework (MFF) 2014-2020. This is cited by Open Europe.
