The 5-Minute Briefing: Britain's EU rebate

What is the rebate?

Wielding her handbag and demanding her "money back", Margaret Thatcher won the rebate at a summit in Fontainebleau after years of complaints about Britain's excessive contributions to Brussels. The cashback system exists only for the UK and compensates the Treasury for paying more into EU coffers than it gets back. This takes into account the fact that Britain receives relatively little from the Common Agricultural Policy. British contributions to the EU vary from year to year and so, therefore, does the rebate but from 1997 to 2003, it was worth €4.6bn (£3.1bn) annually.

Why is the rebate vulnerable now?

Next week EU leaders are due to finalise all the financial plans for the next EU funding period (2007-13). One element is the amount of cash spent to fund the rebate. If it does not like the deal, the UK can veto it. But that could involve Tony Blair taking the blame for destroying an agreement. He has already angered some colleagues by putting British plans for a referendum on the European constitution on hold. Being cast as the villain a second time would be awkward, since the man who takes over the rotating presidency of the EU in three weeks' time is ... Tony Blair.

If it was valid in 1984, what's changed?

Quite a lot. Although the CAP still costs billions each year, it has shrunk dramatically as a proportion of EU spending. Meanwhile Britain, once the sick man of Europe, has become richer, while the French and Germans have slipped back economically - leading many to believe that the UK can afford to part with more cash. Several countries now also pay much more into the EU than they get out, including Germany, the Netherlands, Sweden and Austria. Perhaps most important, the EU has expanded and last year admitted eight ex-Communist countries from eastern Europe. Everyone contributes to the rebate; this year Poland will have to cough up about €230m.

How good is Britain's case?

Britain says that without the rebate it would, between 1995 and 2002, have paid 14 times more into the EU than France and 10 times more than Italy net per capita. Even with the cashback the UK paid two and a half times more than France. But the Netherlands, Austria and Germany are now in a worse predicament than the UK.

So, won't Mr Blair just call on his allies in Europe?

Unfortunately, on this issue he has none. All the new countries of the east resent paying to the rebate. Big net contributors such as the Netherlands, Germany and Austria want a slice of the rebate to reduce their payments. France resents paying so much into the rebate.

Would the rebate end or just be frozen?

The plan on the table (rejected by the UK) is to freeze the rebate at €4.6bn in 2007, then set it "on a downward path from the following year". Some believe that Mr Blair might accept a freeze as long as there is no phase-out.

If it does well out of the EU, why is France so worked up about it?

A row with Britain may do a beleaguered French President, Jacques Chirac, no harm at home. But Paris has a direct interest since it funds about 30 per cent of the rebate. In 1999 a group of net contributors got a concession under which they are let off some of their payments towards the rebate. France pays its full whack.