BUDGET: LUXEMBOURG PRESIDENCY CALL FOR CUT IN UK REBATE POST-2007.

A spokeswoman for European Commission President Jose Manuel Barroso said that the latest draft compromise was "disappointing" because the Commission wanted to be able to fulfil the commitments the EU had made in areas such as the Lisbon Agenda on boosting growth and competitiveness. The Luxembourg paper, she said, seemed to be proposing cuts in key areas for the Lisbon Strategy such as transport and education. She also warned that the shape of the final deal emerging risked jeopardising the EU's ability to honour its commitments in terms of development aid.

The Presidency's decision to address the issue of the UK budget rebate follows the debate on "own resources" (the combination of VAT receipts, customs duties and direct contributions from member states) held by EU Finance Ministers at their informal meeting in Luxembourg on May 13 and the UK general election on May 5 (see Europe Information 2962, Section I).

In the third outline compromise paper (or "negotiating box"), the Presidency says that "considering the subsequent substantial changes in relevant circumstances such as the decreases in agriculture expenditure as a proportion of the budget", the rise in cohesion expenditure following enlargement and the increase in the UK's relative prosperity to among the highest in the EU, the UK's rebate should be "fixed in 2007 on the basis of an average over a period prior to the most recent enlargement (in 2004)" and "sufficiently long to be representative". This amount should be "set on a downward path" from the following year, the paper says, although without specifying how much it should be reduced by or by what percentage in a given year.

The UK's average rebate over the period 1996-2002 was around euro 4.5 billion. But without changes to the current system it is forecast that this could rise to around seven billion a year over in 2007-13.

The new paper also says that no member state should sustain a budgetary burden which is excessive in relation to its relative prosperity" and calls for "specific measures" to be introduced for Germany, the Netherlands and Sweden, the three largest net per capita contributors.

One EU official following the discussions in the Committee of EU Member States' Permanent Representatives (COREPER) said that the language on reducing the UK rebate did not go far enough for those countries who wanted to see the rebate reformed. The official commented that the Luxembourg Presidency did not appear to support the...