Blow for PM's fight to retain EU rebate

The European Union's top official today delivered a heavy blow to Tony Blair's efforts to keep Britain's EU rebate.

Jose Manuel Barroso, president of the European Commission, said the ?3 billion-a-year rebate Britain gets from the EU was no longer "appropriate".

His comments, after talks with Mr Blair at Chequers this morning, come as Britain prepares for a crunch meeting this Sunday on EU spending plans. The UK wants to block a proposal to freeze Britain's rebate in 2007, then cut it from 2008.

But Mr Barroso undermined Britain's negotiating position when he said it could afford to contribute more to Brussels. "When the UK got its rebate there were good reasons. The situation has changed," he said.

"Britain is much more prosperous that 20 years ago and the EU has changed." He added that it was not fair for EU newcomers to be paying more than the UK.

His words are embarrassing for Mr Blair, who pressed for Mr Barroso to become Commission president despite objections by other European leaders. A No 10 spokesman insisted the rebate was not negotiable, saying: "Our position remains the same. The rebate is fully justified and is not up for grabs." The Conservatives criticised Mr Blair's handling of negotiations. Dr Liam Fox, shadow foreign secretary, said: "There must be no question of any challenge to the rebate.

"The Prime Minister should never have let this on the agenda. The rebate was hardwon by Margaret Thatcher. The question is: did the Prime Minister give encouragement to Mr Barroso that the UK might buckle?"

Germany and the Netherlands, which pay more into the EU than they get back, support plans to cut the rebate. Also in favour of the move is France. Foreign Secretary Jack Straw is expected at Sunday's meeting. The Foreign Office thinks the EU should focus on where its cash goes rather than how much nations pay.

Officials say that even with the rebate Britain pays two and half times more into the EU budget than France, and without it the UK would pay 15 times more. They believe savings should come from reforming the Common Agricultural Policy.

Foreign Office insiders indicated it was unlikely the meeting would lead to progress. The issue could then pass to Britain's watch, as it takes over the EU presidency on 1 July.