George Osborne criticised for claims over EU £1.7bn bill as UK to pay full amount

The Guardian explains what the smoke and mirrors means for the Tories.

George Osborne won more time to settle an outstanding and highly contested £1.7bn EU budget bill and went on to make a disputed claim that he had halved the money owed by factoring in Britain’s budget rebates in Europe.

The chancellor’s position was immediately challenged by the European commission, which made clear that the UK has long enjoyed a system of budgetary rebates, so a discount on the controversial surcharge was always going to be applied.

Osborne did succeed in persuading his European counterparts to allow the UK to pay the money in two instalments by next September, delaying payment until well after the general election. Cash had been due by 1 December. David Cameron had loudly and repeatedly insisted he would not pay the £1.7bn demanded and flatly rejected the December deadline, after suddenly being presented with the demand during an EU summit a fortnight ago.

The row over whether the bill had actually been reduced continued after a meeting of European finance ministers in Brussels , when Osborne factored in Britain’s automatic rebate on gross contributions to the EU budget – which have operated since 1980 – to argue that he had succeeded in halving the bill.

However, several participants in the meeting said no one, including Osborne, had contested the correctness of the £1.7bn surcharge demanded from Britain and said no discount had been awarded.

The chancellor disagreed. “Instead of footing the bill, we have halved the bill, we have delayed the bill, we will pay no interest on the bill and if there are mistakes in the bill we will get our money back,” he asserted as he left Brussels. “It’s a result for Britain … The bill, instead of being £1.7bn, will be around £850m.”

This was at odds with how other European finance ministers saw it. “The sum cannot be challenged. We said this and so did many others,” said the Austrian finance minister, Hans-Jörg Schelling. Luis De Guindos, the Spanish finance minister, said the same.

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Jeroen Dijsselbloem, the Dutch finance minister who chairs the group of eurozone finance ministers, said: “Britain has had a rebate system for a very long time.” He added: “No discount was awarded.”

Kristalina Georgieva, commission vice-president in charge of budgetary affairs with whom Osborne negotiated, said: “As we all know the UK receives a rebate on their contribution.”

Her “preliminary calculation” was that the £1.7bn (€2.1bn) surcharge would qualify for a €1bn rebate, allowing the chancellor to claim that he had succeeded in halving the bill.

British officials sought to argue that it had not been clear in the fortnight since Brussels tabled the bill whether it would qualify for a rebate. But if it had not, it would have been unique since Britain’s gross contributions to the EU budget have automatically benefited from the rebate.

Osborne’s argument was helped, however, by the fact that the rebate is to be applied at the same time as the payments are made. Normally, it comes a year after budget payments, but with the surcharge deferred by nine months. In this instance, the rebate will knock in at the same time.

Treasury aides to Osborne conceded that what will happen is that Britain will pay the £850m while not cashing the €1bn rebate cheque, suggesting that sleight-of-hand accounting was being used to mask the conclusion that the full amount demanded by Brussels would be paid.

Schelling said the compromise agreed had not involved any argument about the amount of money owed, only about whether the debt payments could be delayed and paid in instalments without incurring interest. “This proposal is supported by Great Britain,” he said.

The row over the budget surcharges erupted when Cameron was presented with an extra bill based on more accurate calculations of how the UK economy has been performing since 1995.

The prime minister turned apoplectic, denounced the commission in the strongest terms, vowed not to pay the money by the 1 December deadline and said the size of the bill was unacceptable, a position repeated over the past two days at a summit in Helsinki. There he said the demand for the extra payment had eroded British public support for the EU by 10% in two weeks.

The commission also came under attack for mismanaging the issue and Georgieva admitted that the Eurocrats had learned several lessons from the episode.

Labour and Ukip rejected Conservative assertions that the amount owed by Britain had been slashed in half. Ed Balls, the shadow chancellor, said: “David Cameron and George Osborne are trying to take the British people for fools. Ministers have failed to get a better deal for the British taxpayer. Not a single penny has been saved for the taxpayer compared to two weeks ago when David Cameron was blustering in Brussels.

“By counting the rebate Britain was due anyway they are desperately trying to claim that the backdated bill for £1.7bn has somehow been halved. But nobody will fall for this smoke and mirrors. The rebate was never in doubt and in fact was confirmed by the EU budget commissioner last month.”

Labour’s Clare Moody said: “George Osborne’s much trumpeted victory is nothing more than smoke and mirrors. He is simply bringing forward the rebate that we would have received anyway to pay the bill.”

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