BRITAIN is to play for time as it heads off new demands from France and Germany to give up its £3 billion annual rebate from the EU budget.

Gordon Brown will tell EU finance ministers in Luxembourg today that the Government will if necessary use Britain’s veto to stop the assault on the payback secured by Margaret Thatcher 21 years ago.

Tony Blair is expected to maintain the same hardline stance at next week’s summit in Brussels, making it impossible to reach a deal on the EU’s next seven-year budget unless those countries seeking to end Britain’s rebate drop their demands.

Mr Brown will instead bring forward an alternative EU spending plan after Britain assumes the EU presidency in July. This would aim to limit expenditure to no more than 1 per cent of the EU’s combined national wealth by cutting agricultural and regional infrastructure grants, including what the Government believes are unnecessary commission projects.

“Our aim will be to show that spending can be curbed in such a way that it is not necessary to reopen the whole payments argument, including the British rebate,” a senior official said.

Mr Brown may also try to win allies by offering other aggrieved countries financial inducements. Britain accepts the argument of the Netherlands, the largest per capita contributors to the budget, that it has been unfairly treated, and plans being sketched out in the Treasury are designed to lower the Dutch burden.

However, the Chancellor would face considerable opposition from France, which argues that agricultural spending has already been fixed up to 2013, and from Spain, Italy and Greece, which fear any loss of lucrative regional subsidies.

France, Germany and other member states have been pressing for a budget deal before Britain assumes the presidency. But British officials say there is no rush to reach an agreement next week. “We are talking about spending from the beginning of 2007 so we don’t have to agree now.”

British ministers suspect that the new attack on the rebate is prompted by the desire of some leaders, including President Chirac, to distract attention from last week’s humiliating rejections of the constitution.

It may also be an attempt to put London on the back foot by portraying the looming failure of next week’s budgetary negotiations, and any possible consequences on the health of the euro, as Britain’s responsibility — even though national capitals are deeply divided over the size of the seven-year budget package.

Some support the European Commission’s proposal that €1,000 billion (£675 billion)should be spent on EU policies between 2007 and 2013. Others, including the UK, France, Germany, the Netherlands, Sweden and Austria, believe the figure should be nearer €800 billion (£540 billion).

The European Commission argued that compared with 21 years ago the UK was now one of the most prosperous EU countries, and that it would soon be one of the smallest net contributors. It wants a general mechanism to compensate any country that pays a disproportionate amount towards the cost of EU policies. The UK would receive considerably less than at present.

The British rebate — the chèque britannique — has become a running sore in Britain’s relationship with the rest of the EU. No other country gets such a concession, and all other countries must contribute to it.

Some capitals argue that the rebate has gone from being merely unjustified in the old EU of 15 relatively rich countries, to morally indefensible in an enlarged EU containing the relatively impoverished new members from central Europe.

Taxpayers in Estonia, Lithuania, Slovakia and Poland have a fraction of the wealth of the British, but have to pay them money every year. Although Britain championed enlargement, the rebate means that Britain pays only a small share of the extra costs it incurs.

The rebate was secured in 1984 by Margaret Thatcher at a summit in Fontainebleau where, armed with her handbag, she famously declared: “I want my money back.”

She argued that Britain was poorer than the EU average, and yet made a disproportionate net contribution because it got less money back from agricultural subsidies and development funds. France received far more money from the Common Agricultural Policy while Italy, Spain and Ireland received far more in development funds.

Over its 20-year history, the rebate has totalled about £52 billion, or nearly £1,000 for everyone in Britain. During that time the country has become one of the wealthiest EU nations, while the French and German economies have struggled. The Treasury argues that, even with the rebate, Britain paid two and a half times more into the EU between 1995 and 2002 than either France or Italy, countries with similar population and wealth.

Without it, Britain would have paid 14 times more than France and 10 times more than Italy. Since 1984, when the rebate was secured, Britain has paid twice as much into the EU as France.

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