The Treasury is said to be "quietly fuming" about the deal agreed by Blair, which will see Britain paying 60% more to the European budget and the UK rebate cut by £1 billion a year for seven years, in return for a mere review of farm subsidies.
Amid further signs that Blair is losing his grip on his cabinet, John Prescott, the deputy prime minister, has confirmed his opposition to the prime minister’s schools reforms and it emerged that he is leading a separate revolt over public sector pensions. Last Thursday’s cabinet meeting was said to have been the "rowdiest" ever as Prescott and Brown’s allies joined forces to oppose plans to give judges special cash "awards" on retirement.
After Blair returned from a key Brussels summit yesterday, MPs claimed that the prime minister, who will have left Downing Street by the time the expanded EU budget comes into force, has handed Brown a "poisoned chalice" because the finance package could lead to cuts in the chancellor’s domestic spending plans for schools and hospitals.
Even some government officials agreed. "We have ended up giving away much more than we expected and with precious little to show for it in return," said one.
Downing Street admitted last night that the chancellor, who was in America on a business trip, had not been allowed the chance to veto the agreement, which could lead to pressures on the public finances.
A No 10 source said it had not been necessary for the chancellor to be given a "running commentary" because his views were well known. A senior Treasury official had been at the key summit in Brussels representing Brown.
However, insiders say that Jon Cunliffe, head of the Treasury’s macro-economic policy and international directorate, was a "peripheral" figure in the talks. It is understood that despite being 3,000 miles away, the chancellor was ready to make himself available to discuss details of the deal.
The Treasury refused to comment last night, but the manoeuvre is bound to cause renewed tension between No 10 and No 11.
The chancellor has been arguing in recent weeks for limiting the size of the EU budget, but Blair gave in to demands for bigger than expected increases in European spending. It is likely that Brown would have insisted on getting more categorical assurances out of the French that they would cut farming subsidies before giving up part of the rebate and agreeing to boost Britain’s contributions to the EU.
Blair insisted yesterday that reaching a deal was crucial to bolster the enlargement of the EU to 25 member states. It would "enhance Britain’s reputation in Europe" and failing to reach a deal would have done "immense damage" to the national interest.
Critics suspect that Blair was mainly interested in not losing face and securing his legacy as a European leader at the end of Britain’s six-month presidency of the EU. Some MPs suspect the influence of Peter Mandelson, the UK’s European commissioner and old adversary of the chancellor.
Bill Cash, the Tory MP, said: "Tony Blair has handed Gordon Brown a poisoned chalice with this deal. He will have to find an extra £1 billion a year, money that could have gone on hospitals and schools. This will spell real trouble for Brown and I can see why he would be angry."
William Hague, the shadow foreign secretary, accused Blair of caving in over the rebate, secured by Margaret Thatcher in 1984, without gaining any concessions in return.
"Seldom in the course of European negotiations has so much been surrendered for so little," Hague said.
"It is amazing how the government has moved miles while the French have barely yielded a centimetre."
To add to Blair’s woes, France yesterday claimed victory in its battle to defend Europe’s £30 billion-a-year farm budget. Jacques Chirac, the French president, said his nation had "got what it wanted" in principle and goaded Blair by heaping praise on him for displaying "much courage" in his "difficult political gesture".
Meanwhile Prescott has said publicly for the first time that he has reservations about Blair’s plans for schools reform, which he believes will create a two-tier, class-ridden system.
As revealed in The Sunday Times two months ago, the deputy prime minister admitted he had told the cabinet about his fears over the education white paper, which will see state schools becoming independent "trusts" with more freedom from local councils.
"I’m not totally convinced major reform is necessary," he told Susan Crosland, widow of the former Labour education secretary Tony Crosland, in an interview with the Sunday Telegraph.
"Since I was an 11-plus failure, since I do believe that produced a first-class/second-class education system, I fear this is a framework that may do the same. I’m somewhat critical of it. " And there was "a great danger" the new city academies could become grammar schools by another name, he said.
Meanwhile it has emerged that at Thursday’s cabinet meeting Prescott and Brown’s allies led a revolt over Blair’s plans to give judges special cash "awards" towards retirement — at a time when the government is clamping down on the pensions of other public sector workers. Prescott is said to have argued that there should not be one rule for judges and another for the rest of the public sector. He is understood to have received the backing of Des Browne, chief secretary to the Treasury, and Alistair Darling, the transport secretary.
Blair backed the plans drawn up by Lord Falconer, the lord chancellor, that it was justifiable for judges to get special treatment as it was not possible for them to return to their previous lucrative profession after leaving the bench.
