Britain will pay only half its surprise budget bill to Brussels, the country's finance minister said today, claiming a better deal for London which will also see Britain receive its EU budget rebate in advance.
The row over a €2.1 billion (£1.7 billion) EU budget contribution has become a highly contentious issue in Britain in the run-up to a general election in May.
"We have halved the bill, we have delayed the bill, we will pay no interest on the bill," Britain's Chancellor George Osborne told reporters following a meeting with EU peers in Brussels.
"The bill, instead of £1.7 billion will be around £850m," he said.
Under a deal agreed with EU ministers and the European Commission, the EU executive, Osborne said Britain would make two interest-free payments next year and would be paid its EU budget rebate upfront.
Because of a historic statistical review of national accounts, Britain was due to make the €2.1 billion payment into the EU budget by December 1 or face punitive interest payments.
Three decades ago, Britain's then prime minister, Margaret Thatcher, won a rebate on the budget contributions that means the country gets back two thirds of its net contribution to the EU budget of the previous year. In 2014, the rebate is worth €5.4 billion.
The UK is in line for an increase of over €500m in its rebate next year, using the same data on the British economy behind the request for an extra British payment.
France said the deal would give Britain until September 2015 to pay, in a bid to allow Cameron to save face by leaving the issue until after the election if he choses to.
Britain has found sympathy from France, Italy and Germany because of the statistical review stretching back over a decade.
However, Osborne's counterparts and EU officials had saidt hat it was not possible to let Britain, Europe's third largest economy, contribute less, despite Cameron's promise to the British parliament that will not pay "anything like" the full amount.
The dispute is part of the EU's long-term, €960 billion budget for the 2014-2020 period, an amount that represents a nominal decrease of around 3% on the last budget.
Money goes to areas from farming to foreign policy and Britain and its EU partners agreed to it in February last year.
EU countries review the budget on an annual basis and Britain's surprise bill is part of London's 2014 contribution ,which does not change the overall size of the budget but means some countries pay less because Britain pays in more.
That reflects a review of national statistics across Europe and in particular a larger than previously estimated rise since 2002 in the contribution of non-profit organisations - including clubs, churches and universities - to the British economy.
But officials in Brussels are at pains to stress that the review does not mean Britain will always pay more.
Speaking following a meeting of EU finance ministers in Brussels this evening, Minister for Finance Michael Noonan took issue with the Mr Osborne suggesting that the bill had been halved.
When asked if he understood that Britain still had to pay the full amount, Mr Noonan said: "The UK will pay the whole amount, but there will be no penalties attached or interest rate."
When it was put to him that Mr Osborne had said the bill had been halved from £1.7 billion to £850 million, Mr Noonan said: "I don't know what the basis of that calculation is."
Mr Noonan said Ireland's bill under the statistical recalculation of each member state's Gross National Income (GNI), the method by which EU contributions are made, would be €6.5 million.
"We'll pay that according to the existing rules by the first of December."
