Britain to get EU windfall

Margaret Thatcher negotiated the terms of the rebate in 1984

The European Commission (EC) is set to announce that Britain is to receive a £2.8bn windfall repayment on its EU contributions.

The repayment is the result of a surplus on last year's budget which is being given back to member states - but Britain is by far the biggest beneficiary.

When the EC closed its accounts for 2000, it discovered about £6bn more in its coffers than it had budgeted for, thanks mainly to under-spending on regional aid.

The payback details are being released a day after president of the European Commission, Romano Prodi, called for a new tax to pay the EU's £60bn-a-year running costs.

The annual euro-budget is based on contributions from the 15 member states' treasuries, totalling no more than 1.27% of their combined wealth. The current "take" amounts to 1.09%.

Much of the surplus cash is paid back in the form of financial support for agriculture and regional and social grants to revive local economies and combat poverty and unemployment.

Thatcher's EU battle

Britain currently pays the third largest share of the EU's running costs, but for years it was by far the highest net contributor to Brussels - despite being poorer than other key member states like Germany and France.

This was because the UK's relatively successful farming sector qualified for less cash support than most others.

EU Top 10 - 1999 cost contributions

Germany - 26.4%

France - 17.2%

Britain - 13.5%

Italy - 13.0%

Spain - 6.9%

Holland - 6.0%

Belgium - 3.9%

Sweden - 2.9%

Austria - 2.7%

Denmark - 2.0%

The problem led to a lengthy fight by the then Prime Minister Margaret Thatcher for "my money back".

The bitter struggle ended in victory in 1984 when the rest of the EU agreed a permanent system of rebates to compensate the UK Treasury.

The rebates have been worth billions since then, and pressure to end the system has been resisted by Britain.

It was last reviewed in 1992 when it was agreed it could continue.

Election issue

Britain will this year receive almost half the total amount of surplus being returned to the EU's member states.

One reason for the substantial leftovers is that some member states are reluctant to take up grants which require matching funding from national coffers.

The £2.8bn will prove a tidy sum for the UK Government - for instance, it would finance the entire NHS for a month.

Prodi has announced plans for a new EU tax

It will be welcomed by ministers at a time when the European Union is under fire during the election campaign, and the Tories are accusing Tony Blair's government of not standing up to Brussels.

Prodi's call on Tuesday for a new tax to pay the EU's annual running costs further reignited the row over Europe, although senior commission officials insisted the president was not interfering in the election campaign.

How the tax would be levied was still "to be defined", said Mr Prodi, but it would replace the current complex system in which national exchequers hand over a share of national VAT receipts and a proportion of other government funds to the EU kitty.

The new direct "tax" might actually reduce Britain's overall share of EU contributions, but it was immediately seized upon by euro sceptics as confirmation that taking control of national tax policies is on the Brussels agenda.