Blair 'being forced into EU compromise'

A major compromise by Tony Blair to cut Britain's £3 billion-a-year European rebate looked increasingly likely today.

The Prime Minister is under intense pressure from European leaders to surrender the "British cheque" won by Margaret Thatcher in 1984.

Almost all the leading member countries are backing a Franco- German plan to increase the size of the EU budget. The proposals, being hammered out by President Jacques Chirac of France, Germany's Chancellor Gerhard Schroeder and Jean-Claude Juncker of Luxembourg, whose country holds the EU presidency, are aimed at pushing Britain into cutting the rebate.

An increasingly isolated Mr Blair is being portrayed as the only obstacle in the way of a budget agreement.

For years Britain has claimed the rebate was not open to negotiation. But there are signs that Mr Blair may be starting to buckle and could sign up to a compromise deal, which would see the rebate frozen from 2007.

The Prime Minister appeared to pave the way for a climbdown in a Financial Times interview, refusing to say whether Britain's contribution was "non-negotiable". He instead said the rebate was "going to remain".

The Prime Minister faces crunch talks with Mr Juncker in Luxembourg next Tuesday. Mr Blair is expected to argue that Britain will only move if Mr Chirac agrees to a cut in the huge subsidies France receives through the Common Agricultural Policy. France reaps far more in farm subsidies than Britain gets back through the rebate.

Britain originally won the rebate because it pays more into the EU kitty than it gets back. Without the rebate Britain's net contribution between 1995 and 2003 would have been 15 times that of France and 12 times that of Italy, UK officials claim.

The Franco-German plan would see the EU budget for 2007 to 2013 increased to
1.06 per cent of Europe's income. They argue that this can only be achieved if Britain dismantles its rebate.

Gordon Brown has said that the EU budget should be capped at one per cent, saying this would still allow for annual increases.