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Friday, December 11, 1998 Published at 00:43 GMT

UK Politics

Blair faces rebate row

Tony Blair arriving in Vienna in defiant mood

The UK Prime Minister Tony Blair has flown to Vienna hoping to fight off attempts by other EU leaders to reduce the UK's £2bn budget rebate.

Tony Blair: "The British rebate is not up for negotiation"
On arriving in Austria for the two-day summit, Mr Blair declared he was not prepared to negotiate on the issue: "We've made it quite clear that the British rebate is not up for negotiation Without the rebate Britain's net contribution to the European Union would be quite unfair."

But regardless of the bullish tone, the UK will come under fierce pressure from France and Germany during the two-day summit to offer up its £2bn-plus annual rebate - won after Margaret Thatcher demanded "I want my money back" in 1984 - as part of a radical reform of Europe's annual £60bn spending.

[ image: William Hague accused Tony Blair of following the left-wing herd]
William Hague accused Tony Blair of following the left-wing herd
And Mr Blair will hear calls led by Austrian President Viktor Klima, the summit host, for greater tax harmonisation across the EU. The issue has been fuelling controversy in the UK over recent weeks.

As Mr Blair departed, the UK opposition leader, William Hague, accused him and his government of "naivete" in its dealings with Europe and said ministers were too ready to "run with the herd" in the EU.

Blair will 'go with the flow'

The BBC's Robin Oakley: "Sporting chance" of reprieve on duty free
Conservative leader Mr Hague, speaking before attending a meeting of centre-right European party leaders in Vienna, told BBC TV News there was a risk that a "left-wing agenda of higher taxes in Europe and greater regulation will be allowed to drift along and Tony Blair will not confront that because they will go with the flow".

Since last September's German elections, 13 of the EU's 15 member states are now run by social democratic or socialist governments.

In an interview with Vienna's Kronen Zeitung newspaper Mr Blair conceded the summit would be the scene of fierce discussions over economic reform designed to pave the way for enlargement of the EU.

But he added: "I don't think it should become an ugly discussion. I think it is important it is resolved on the basis of fairness." He insisted the UK has "a strong position in respect of the rebate".

No German blank cheque

[ image: Gerhard Schröder: The German chancellor is leading calls to look again at the UK's budget rebate]
Gerhard Schröder: The German chancellor is leading calls to look again at the UK's budget rebate
Mr Blair has vowed to use the UK's veto if necessary to keep the rebate and to stop tax changes he disagrees with.

Strength of feeling on the issue among other European leaders, however, was highlighted again when Germany's chancellor Gerhard Schröder warned in a speech to his parliament that "Europe's problems cannot and will not be solved with the German chequebook".

He also warned the German people could lose faith with Europe if economic issues were not resolved.

Mr Schröder agreed a joint position with Mr Blair earlier this week to block any move towards a common income tax or corporation tax on company profits.

But the UK will still face demands to agree to a "withholding tax" on savings held in another member state, which Mr Blair fears could hurt the City of London.

Duty-free reprieve

Meanwhile, Mr Blair is holding out the prospect of a re-think on the abolition of duty-free as a UK gain from the summit.

[ image: A last-ditch reprieve for duty-free would allow Tony Blair to claim a summit victory]
A last-ditch reprieve for duty-free would allow Tony Blair to claim a summit victory
A handful of EU countries have been blocking a temporary halt to next July's scheduled end to duty-free - but appeared on the eve of the summit to be near to accepting demands, led by the UK, France and Germany, to look again at the issue.

If a reprieve is forthcoming, it would allow Mr Blair to come away from the summit claiming to have scored a victory.

The government will also be hoping the duty-free issue helps deflect domestic attention from the undoubtedly bigger subjects of the budget rebate and tax harmonisation. The last thing Tony Blair wants is for them to dominate the headlines of Eurosceptic tabloid newspapers such as the Sun.

Accompanying him in Vienna are Foreign Secretary Robin Cook and Chancellor Gordon Brown, who will hold talks with their European counterparts.

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