Britain could pay disputed EU $3.37 billion bill after May 2015 general election

European Financial Stability, Financial Services and Capital Markets Commissioner Jonathan Hill (left) talks to German Finance Minister Wolfgang Schaeuble during an EU finance ministers meeting in Brussels on Nov 7, 2014. Britain could have unti
European Financial Stability, Financial Services and Capital Markets Commissioner Jonathan Hill (left) talks to German Finance Minister Wolfgang Schaeuble during an EU finance ministers meeting in Brussels on Nov 7, 2014. Britain could have until September next year to pay a surprise budget bill to Brussels, France's finance minister said on Friday, detailing an EU proposal to avoid what Britain's prime minister warned risking becoming a "major problem." -- PHOTO: REUTERS

BRUSSELS (Reuters) - Britain could have until September next year to pay a surprise budget bill to Brussels, France's finance minister said on Friday, detailing an EU proposal to avoid what Britain's prime minister warned risking becoming a "major problem."

The row over a 2.1 billion euro (S$3.37 billion) EU budget contribution has become a highly contentious issue in Britain in the run-up to a general election in May, putting David Cameron under pressure from Eurosceptics at home and costing British support for the country's membership of the European Union.

The proposal to give Britain and other EU countries until September 2015 to pay would allow Cameron to save face by leaving the issue until after the election if he chose to. Britain could also pay the bill in instalments.

Britain has found sympathy from France, Italy and Germany because the bill is due to a historical statistical review stretching back over a decade.

"What I support is that Great Britain and other EU countries have (into) 2015 to pay, with the first of September as the limit, for very understandable reasons," France's Finance Minister Michel Sapin told reporters.

Italy, which holds the EU's rotating presidency, presented the compromise at a ministerial meeting in Brussels. Interest normally incurred on late budget payments would also be waived.

Officials said Britain had yet to agree to the compromise proposal and the issue will likely be debated again next week at a meeting in Brussels on Nov 14.

Chancellor George Osborne told reporters as he arrived for the meeting that the demands to pay by the deadline of Dec 1 were unacceptable. "I will make sure we get a better deal for Britain," he said.

Speaking in Helsinki, Cameron, who displayed vivid anger over the issue at a summit last month, suggested he still had a problem with the size of the bill and when it should be paid.

"The two elements that I said were absolutely clear was that we wouldn't pay 2 billion euros on the first of December and we didn't believe in paying anything like that amount," Cameron said.

"Those are the two issues I have put on the table. I hope they can be resolved at Ecofin," he added, referring to Friday's meeting of EU finance ministers in Brussels. "If they can be then that would be good, if they can't then obviously we will have a major problem."

Osborne's counterparts and EU officials say it is out of the question 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 rules for calculating that are not only quite precise, they are also just," Polish Finance Mateusz Szczurek told Reuters. "The budget contributions are based on gross national income and I don't really believe that they should be changed."

Britain's opposition Labour party has called on Cameron to consider taking the case to the European Court of Justice, the EU's top court, in Luxembourg.

Cameron has promised a referendum on Britain's EU membership in 2017 if his Conservative party wins the May election and the budget issue appears to have made a vote for leaving in more likely, at least for now.

The latest YouGov poll on the referendum issue showed 41 percent of Britons would vote to leave the European Union, compared to 38 percent who would vote to stay. That compared to a slight majority in favour of staying in before the budget issue emerged to dominate the political debate in Britain.

EU officials say any deal has to strike a balance between Britain - which already receives a much envied annual rebate on its EU contribution - and those states, including Germany and France, which will benefit from the statistical revision.

The dispute is part of the EU's long-term, 960 billion euro budget for the 2014-2020 period, an amount that represents a nominal decrease of around 3 percent 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.

Changing the rules could threaten London's EU budget rebate, a contentious issue as Britain has become wealthier relative to its EU peers since it was agreed in 1984.

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 euros.