European Commission

Overall EU spending proposed by Herman Van Rompuy remains 50bn higher than the initial British demand

David Cameron failed on Thursday night in his bid to persuade the European council president, Herman Van Rompuy, to agree a 6bn ( 4.85bn) cut in EU administration costs.

Cameron did manage to secure modest cuts in the Connecting Europe budget, where Van Rompuy agreed to a 4.5bn cut. The prime minister had suggested a cut of 20bn.

The British rebate was not discussed. This meant that the Van Rompuy proposal – exempting rural payments to new member states from the rebate and asking the UK to contribute to the rebate – remains in place.

The latest Van Rompuy draft says on the rebate: “The existing correction mechanism for the UK will continue to apply. The last part of the current own resources decision related to the breakdown of rural development expenditure is no longer applicable.

Temporary corrections in the form of lump sum growth projections (in current prices) in annual GNI based contributions during the period 2014-2020 will be granted to the following member states – 2.8bn to Germany, 1.15bn to the Netherlands, and 325m to Sweden. All corrections (the UK correction and the temporary lump sum corrections) will be fully financed by all member states based on the GNI key.”

One EU official said many in Brussels believe that Britain is taking a tough stance on the relatively small administrative spending – pay and other related costs – to mask a change of tack in Cameron’s plans for a real terms freeze in the overall EU budget.

While Cameron told Van Rompuy he was pleased with big budget cuts tabled last week by Brussels, the spending proposed by Van Rompuy remains 50bn higher than the initial British demand. The Van Rompuy paper reduced European commission budget proposals by 81bn.

Stepping up his campaign against eurocrats, Cameron urged further cuts to administration costs by:

Increasing the retirement age to 68 for all EU officials now under the age of 58. The current retirement age is 63. This would save 1.5bn.

Cutting the overall EU pay bill by 10% for officials, saving 3bn.

Lowering the pension cap from 70% of an official’s final salary to 60%, saving 1.5bn.

A UK official said: “These are not dramatic changes. The commission and others are telling the Greeks, the Italians and others that they should put the retirement age up to 68. In the UK we have cut [public sector] pensions to a career average salary. They argue that it is very difficult legally to change people’s terms and conditions. Well, we have managed it in the UK.”

The commission has proposed increasing the administrative budget from 56bn to 63bn. Van Rompuy has proposed a trim to 62.63bn. Cameron told Van Rompuy the EU should follow the example of Whitehall which has imposed cuts of between 25%-30% in administrative costs. One British official said: “We can save tens of billions compared with what is on the table.”

While Van Rompuy was said not to have responded to UK demands, Jos Manuel Barroso, the commission president, was reported to have reacted defensively.

Under pressure from Barroso, Van Rompuy has already minimised his proposed cuts to eurocrats’ terms and conditions to 500m over seven years. Some of the British demands are also supported by the Germans and the Dutch.

EU officials accept it is difficult to argue with the need for cuts in the cost of administration during a time of austerity, though there is anger that Britain has declined to publish the salaries of its diplomats in Brussels. They receive generous housing allowances and live in the most exclusive areas of Brussels such as Ixelles in the centre and Tervuren on the outskirts.

Cameron is encouraged by Van Rompuy’s proposed “payment ceiling” – the amount that is due to be paid out – of 940bn, compared to the first European commission payment ceiling of 987.6bn. Britain is insisting that the overall figure has to come in below 940bn. But Cameron appeared resigned to accepting he would not achieve his original target figure of 886bn.

The administration costs of the EU represent only 6.4% of the overall budget. Senior UK officials admit that big savings cannot be made there, but emphasise that the issue is “very symbolic” not only, but especially, in Britain.

Cameron highlighted the “Connecting Europe” project, which is designed to connect the continent through transport and energy infrastructure projects.One EU official said: “David Cameron lectures us all on the need to draw up a budget for growth. And yet he now wants to cut the very part of the budget that will build up transport, energy and broadband infrastructure.”

Another EU official pointed out that it is designed to help fund the proposed high speed rail link from London to Birmingham and the electrification of the Great Western rail line.

Cameron’s decision to target the growth budget and administrative costs for cuts shows Downing Street has accepted that Britain will not win any further cuts in the two highest areas of expenditure. These are the Common Agricultural Policy (CAP) and structural funds that help build the infrastructure of poorer areas, notably in eastern Europe.

France’s president, Fran ois Hollande, arrived at the summit incensed at proposed cuts to the farms budget of some 60bn compared to the current seven-year period and also embittered at having currently to fund a quarter of Britain’s annual 3.6bn rebate.

He sought to gain the support of the German chancellor, Angela Merkel, before the summit started, but was said to have found little sympathy. The French said they were in no hurry to reach a deal, indicating that the summit could collapse in failure over the next 48 hours.