I YIELD TO no one in my contempt for European Union institutions — for the Common Agricultural Policy and its maladministrators in the European Commission, for the social charter and its overinterpreters in the European Court of Justice, for the euro and its mismanagers at the European Central Bank. I firmly believe that many of the powers and functions of the European Union should be returned to the national level and that the surest way to achieve this is to starve Brussels of funds.

And I am convinced that British politicians and diplomats have failed to defend the country’s vital interests against the ruthless nationalism of France, Spain, Italy and other shamelessly self-serving European powers.

Despite all this, or more precisely because of it, I fervently hope that Tony Blair will hoist a white flag tomorrow at the European summit in London. Yes, I want the Prime Minister to surrender the special rebate won by Margaret Thatcher in 1984 from her “partners” to compensate for Britain, with its small agricultural sector, otherwise being the largest contributor to EU funds. The sums involved in the rebate have always been paltry — currently about £2 billion a year, which is less than a half of 1 per cent of British public spending. But the top priority attached by every government to “getting our money back” from Europe has been one of the few fixed principles of Britain’s relationship with the EU.

It is now high time for this principle to be abandoned. Tomorrow Mr Blair should pluck up the courage to sacrifice Mrs Thatcher’s rebate — and to face the inevitable cries of treason from the Tories and the popular press — partly because a budget deal is essential to make a success of the EU’s eastward enlargement. If Mr Blair refuses to negotiate on the British refund, he will seriously damage the alliances he skilfully created in the early years of this decade with Poland and other Central European countries, which will bear most of the costs of a continuing budget deadlock.

This would be regrettable, and not only because it would breach Britain’s moral commitment to help these countries to catch up with living standards in Western Europe. More importantly from a strictly self-interested British perspective, a diplomatic breach now with Central Europe would splinter the increasingly powerful coalition of economically liberal, anti-federalist EU countries that are willing to back many British reform initiatives in opposition to the more protectionist, integrationist coalition centred on France. This would be a foolish time for Britain to break with its allies.

However, the moral and diplomatic reasons for keeping faith with the struggling accession countries represent only a small part of the case. The core of the argument is much more powerful, yet less often heard. The fact is that the rebate, far from being the glorious triumph claimed by Margaret Thatcher, was always a pyrrhic victory that has done untold damage to Britain’s national interest and has cost the country far more in economic damage than Europe will ever repay.

The very existence of the British rebate has harmed the country in two related, but distinct, ways. First, the need to defend the rebate has distracted British politicians from much more important European issues, often at crucial turning points in EU negotiations. Arguments over the rebate weakened Mrs Thatcher when she was trying to block the European exchange-rate mechanism and distracted John Major when he should have been focusing on the flaws in the Maastricht treaty; but the clearest example arose at the disastrous October 2002 summit, which created the conditions for the present budget crisis. Just before this summit President Chirac did a private deal with Germany to postpone any serious cutbacks in the CAP until 2014. This deal breached a string of agreements among EU leaders and could have been vetoed by Tony Blair, but Chirac was able to distract the Prime Minister’s attention by simultaneously mounting a diversionary attack on the British rebate.

Mr Blair’s success in defending the rebate was another pyrrhic victory, won at the cost of the infinitely more important abandonment of CAP reform. So while Britain will continue to receive its £2 billion a year rebate, it must also continue to bear the costs of the agricultural policy, estimated at roughly £6 billion annually, before allowing for the even greater losses from the diversion of public resources to agriculture from more productive uses such as infrastructure investment, education and research.

The gross disproportion between the size of the British rebate and the costs of mismanagement by the EU brings me to the second, and even more important reason, why Mr Blair should abandon this totem. The existence of the rebate has lulled British politicians, diplomats and voters into complacency about the functioning of the EU. The rebate created the illusion that Britain could win special protection from the costs of the CAP, which was the EU’s most damaging and expensive inanity (at least until the creation of the European Central Bank). This, in turn, has encouraged a sense of world-weary semi-detachment among politicians and voters, rather than moral outrage at the damage done by the CAP to developing countries and its grotesque redistribution of income from the poorest urban consumers to the richest landowners, especially in France.

To make matters worse, in addition to offering British politicians a pretext to neglect EU issues, the existence of the rebate has destroyed their moral authority in Europe when they have campaigned for reform. Every time Britain makes a proposal to rationalise the EU budget or hack off an unnecessary limb of the European bureaucracy, the opponents of reform have only to mention the rebate. Britain is then forced into a tactical negotiation over money, rather than principle.

Because of the rebate Britain is always on the back foot in EU negotiations and has failed in the manifestly just cause of agricultural reform. If Britain wants to lead Europe, or even influence it constructively, we cannot just say: “We want our money back.”

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