The report, by the all-party House of Lords EU Select Committee, called for an urgent review of the EU budget, declaring it a “relic”. It said the budget had failed its objectives, adding that its biggest area of spending, agriculture, was both insupportable and immoral.

The report, written by Lord Radice, a board member of the pro-EU campaign group Britain in Europe, calls for huge amounts of EU spending to be handed back to national governments. It says Brussels can no longer justify being in full control of agricultural and development spending, which make up 70 per cent of its budget, saying that national governments are usually better placed to spend it.

The report, based on evidence from senior EU officials, bolsters the Government’s claim that the British rebate, worth about £4 billion a year, is justified, despite demands from the European Commission and many other member states that it be scrapped. Negotiations for the EU budget are reaching their climax, with the Commission demanding more than €1 trillion (£689 billion) for the seven-year period.

The report lends support to government figures, which it is using in the budget negotiations, that show Britain has contributed more than £180 billion to the EU since it joined in 1973, equivalent to £7,500 per household or three years’ spending on the NHS. If Margaret Thatcher had not secured the rebate in 1984 — when she declared “I want my money back” — Britain would have contributed £250 billion, or a quarter of one year’s GDP.

In return Britain has got £105 billion worth of agricultural and development subsidies since 1973, meaning that Britain has paid in £75 billion more to the EU than it has got out. Although all taxpayers contribute to the EU budget, only select groups get money back.

The House of Lords report shows that without its rebate Britain would be the largest net contributor to the EU, and even after the rebate it is the second biggest after Germany.

The Common Agricultural Policy, aimed at boosting farming after the Second World War, still makes up more than 40 per cent of EU spending, with €404 billion set aside for it between 2006 and 2013. Because of the sectors that are subsidised, France gets 2½ times as much money out of the CAP as Britain, which gets less farming subsidy per person than any other EU country. Recent reforms of the CAP mean that farmers are generally no longer paid to produce food but for owning the land. The report says that the CAP “has been needlessly expensive, its subsidies have gone overwhelmingly to large farmers, it has done little to arrest the decline in general farm incomes, and it discriminates against farmers from developing countries”. It concludes: “The present system of farm subsidies is insupportable and immoral.”

Lord Radice told The Times: “It’s an historic relic. It can’t be the way we do it in the future.” The report called for agricultural spending to be taken away from Brussels and returned to national governments. “The logic of the situation in which the CAP has changed from being a production-related scheme into what is really a system of income support for one particular group of people (farmers) . . . is that such support ought to be financed nationally, not at EU level.”

Britain is middle-ranking as a recipient of development funds, which makes up a third of the EU budget, getting €275 in subsidies per person between 2000 and 2006, compared with €154 for Denmark and €2,275 for Greece. With the enlargement of the EU to include eight poor, former-communist, Eastern European countries, the report says that rich member states should take responsibility for their own development spending.

It rejects the Commission’s argument that Brussels knows better how to spend development money in countries such as Britain than the Government itself does.

The Commission has proposed replacing the British rebate with one that benefits all big contributors to the EU, rather than just Britain. A commission spokeswoman said: “When the rebate was introduced in 1984, the wealth of the UK was lower than other net contributors. Now the wealth of the UK is much higher.”

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