Losing rebate will put UK £29bn in the red

TONY Blair's battle to save Britain's European Union rebate is critical for the nation's ailing balance of payments, official figures will show this week.

If the Government caved in, the UK's overdraft with the rest of the world could hit £30 billion a year, triggering a slide in sterling and higher interest rates.

Figures on Thursday for the balance of payments will confirm that, even with the rebate, Britain's contribution to the EU accounted for nearly a fifth of the £25.7 billion deficit run up during 2004.

Without the £3.59 billion rebate, which France and Germany want Britain to give up, the deficit would have hit £29.29 billion, with EU contributions accounting for 28% of the shortfall.

Trevor Williams, economist at Lloyds TSB, said: 'The rebate is a not inconsiderable sum.'

This week's figures, which will cover the balance of payments up to the first quarter of this year, will turn the spotlight not only on Britain's EU contribution, but on the mounting cost of UK payments to other international organisations.

Detailed figures show Britain paying £74 million to military organisations in 1993, rising to £152 million by 2003, while spending on 'military grants' rose from £35 million in 1993 to £107 million in 2003. During the same ten years, the bill for 'technical co-operation' extended to foreign governments rose from £474 million to £1.32 billion.

Transfers to and from international organisations make up one of the four main elements in the balance of payments, along with trade in goods, trade in services and income on foreign investments.