The EU is making another attempt to agree a framework budget for 2007-13, which will climax at a summit in Brussels on 15 and 16 December.
The last attempt, at a summit in June 2005, ended in failure and bitter recriminations.
On that occasion Britain refused to agree to a freeze in its annual rebate, unless it got guarantees of fundamental reform to the EU budget, and cuts in farm spending.
Now it is offering to pay more money into the EU budget in order to get a deal.
What is the UK proposing?
Key elements of the UK proposal include:
- An increase in UK contributions to help pay for the cost of EU enlargement - probably by reducing the rebate
Rough parity between the net contributions to the EU made by the UK and "like-sized states" in terms of gross national income
- A cut in development aid to new member states, compensated for by measures to make it easier for them to take advantage of this aid
- A cut in rural development aid in old member states
- A lower level of spending overall, than that proposed by the European Commission or by Luxembourg's EU presidency in the first half of 2005
- A mid-term review of the budget, which would allow but not force a change in spending priorities in the second half of the 2007-13 period
Is the UK offering to give up all of its rebate?
No, at most part of it. The prime minister's spokesman said on 2 December that it could agree to give up between 12% and 15%.
Foreign Secretary Jack Straw said on 5 December that the extra money the UK contributes could either come in the form of a reduction in the rebate, or an increase in the VAT receipts the UK sends to Brussels.
Since the rebate is set to grow sharply over the next few years, the UK's offer to give up about 1bn euros per year will have the effect of limiting the rebate's growth, rather than causing an actual reduction in the amount the UK receives.
Why is the UK prepared to give up some of the rebate?
The UK has always said that the rebate is justified as long as the EU continues to spend a large part of its budget on farm subsidies.
However, it also wants to help pay its share of the cost of enlargement - and unless the rebate is whittled down, or the UK's contribution is increased in some other way, the UK is likely to drop by 2013 from being one of the biggest net contributors to being one of the smallest.
On the other hand, if the UK gave up all of the rebate it would already be the biggest net contributor to the budget.
What does the UK mean by "rough parity" with the payments made by like-sized states?
This is all about the net contribution the wealthier countries make to the EU budget - that is, the amount they pay in minus the amount they get back in the form of EU spending.
Tony Blair said on 1 December he wanted Britain and like-sized countries - Italy and France - to be making net contributions that amounted to a similar proportion of their gross national income (GNI).
In 2004, the UK's net contribution as a proportion of its GNI was larger than France's or Italy's, even after it had received the rebate.
Without the rebate, the difference would have been much greater.
But over the 2007-2013 period, the position would be reversed.
France and Italy would make a much larger net contribution as a proportion of GNI than the UK, if the rebate continued in its present form.
To bring the UK into parity with France, the UK has to increase its net contribution by about 0.1% of its GNI.
Why the emphasis on "like-sized" countries?
Possibly because the countries that make the largest net contribution, as a proportion of their GNI, are not the UK's size.
They are the Netherlands and Sweden, which are much smaller, and Germany, which is significantly larger.
Why is the UK suggesting reducing the overall level of spending?
The main net contributor countries, including the UK, have long been keen on controlling EU spending.
Mr Blair has said he would have preferred a "large deal", which would brought fundamental changes to the budget. Since that does not appear to be possible, he is seeking a "small deal", reducing its size.
The UK's proposal sets the EU budget at 1.03% of EU gross national income, or 849bn euros.
The Luxembourg proposal would have set it at 1.06%, or 871 billion euros.
The European Commission originally proposed a one-trillion-euro budget.
Why is the UK proposing a cut in development aid to new member states?
The UK would have preferred to cut agricultural subsidies, which make up about 46% of the budget, but it faced fierce opposition, from France among others.
Regional aid to the EU's poorer regions forms the next biggest part of the budget, and was therefore a natural target.
In addition, the UK says that countries rarely absorb all the regional aid that is available to them. Poland is reported to have made use of only 5% of its 2004-6 funds so far.
The UK has suggested that the cut in regional aid to the new states should be compensated for by measures that would make it easier for them to make use of the money.
They would have three years rather than two to spend it, and would have to put up matching funds of only 15% of the total they received, compared to 20% under existing rules. They would also be allowed to use the money for housing projects.
The decision to cut rural development aid in the old member states is less controversial than cutting farm subsidies as it falls outside a 2002 agreement to hold farm spending steady until 2013.