The House of Commons has voted against the government and called for a real-terms cut in the EU's long-term budget, as dozens of Conservative MPs defied their party whips.
Opening a Commons debate on the EU on 31 October 2012, Financial Secretary to the Treasury Greg Clark argued that a Commons commitment to such a cut was unnecessary as the government planned to push for one in forthcoming negotiations with EU leaders anyway.
"The very most that we would accept would be a real-terms freeze," he told MPs.
The debate was triggered by a government motion setting out its plan to "seek significant savings" to the EU's budget, or "multi-annual financial framework" (MFF), which is re-negotiated every seven years.
A group of Tory backbenchers, led by Mark Reckless, proposed an amendment urging the government "to strengthen its stance so that the next MFF is reduced in real terms".
But their amendment would have undesirable side-effects, Mr Clark contended, such as removing the "condemnation" of Labour's track-record on EU budget negotiations.
He also claimed that the amendment "would send a signal that this House supports the introduction of a new financial-transaction tax", by removing criticism of the proposals, "which could badly undermine Britain's economy".
Veteran Conservative Edward Leigh MP said Chief Whip Sir George Young had been trying to dissuade potential rebels from taking a "patriotic" stance.
But MPs voted by 307 to 294, a majority of 13, against the government.
Shadow Treasury minister Chris Leslie said it would be "perverse" if the EU were not exempt from cuts in the period from 2014 to 2020, while governments across Europe were introducing austerity programmes.
Mr Leslie said: "When times are tough, not only in Britain but across Europe, it is all the more important that the negotiations on the next seven-year EU spending review, the Multi-Annual Financial Framework, spurn the inflationary tendencies to simply repeat previous settlements plus a nominal price adjustment."
Mr Reckless summed up the decision facing MPs: "If you are happy with an inflationary increase in the EU budget, plus everything else that happens because of the continued loss of the rebate, then vote for the government motion.
"If you think the European Union has too much money, its budget is too large and needs to be cut, then support my amendment."
The European Commission's proposed budget for 2014-2020 would see a 5% increase on the current seven-year period.