Why Blair is leaving a toxic legacy for Brown

Tony Blair's decision to give away £7bn of the UK's EU rebate could have been avoided, says Brian Durrant in The Fleet Street Letter. But Mr Blair doesn't care - he will be out of office by the time the bills start flooding in. But Gordon Brown might not be as happy...

We are still in the middle of the pantomime season. One of the most popular shows is Jack and the Beanstalk. You know it well, of course.

The tale involves a boy who's asked to take the family cow to market. His mother tells him to get the best price he can for it. But he's too lazy and foolish to do that. Instead he is conned into exchanging the cow for a handful of beans by the first person that comes along.

And last month our Prime Minister was as idle and clueless as Jack.

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Tony Blair surrendered £7 billion of our EU rebate in return for nothing more than vague commitments to review Brussels spending in 2008. But unlike the fairy tale, this won't have a happy ending. Mr Blair is no giant killer, and his goose won't lay golden eggs.

When the various negotiators returned from Brussels in December, one French official said: "We are safeguarded. We will not accept any change. We go on in our position that the Common Agricultural Policy has been set until 2013 inclusive". Asked how the French government would respond to a spending review that demanded a cut in farm spending, he said "We would veto it".

So in short, as UKIP leader Nigel Farage put it, "game, set and match to President Chirac". Mr Blair had been "outclassed and outplayed at every turn". President Chirac agrees. He says that France got what it wanted, successfully defending Europe's £30bn a year farming budget.

Mr Chirac then heaped praise on Mr Blair for displaying much courage! And when French politicians start praising the British Prime Minister, you know something is seriously wrong.

But it is not just the Eurosceptics like Mr Farage who are furious. The Treasury is said to be "quietly fuming" about the deal agreed by the PM. In a written parliamentary answer, the Chancellor said that the estimated annual costs of the rebate concession would be £500m in 2007/08, rising up to £1.9bn a year four years from now.

These costs are significant for the Treasury. In last month's pre-Budget report the Chancellor had planned for public spending to grow by just 1.9% a year from 2008 onwards, down from 6.6% in 2004/5. But the annual rebate reduction will cut planned spending by 0.25% from 2010.

Of course Tony Blair will not be around when the consequences of his deal really bite. He will no doubt be out of harms way on a lucrative lecture tour in the US. But his successor will have to find an extra £1.9bn a year that could have gone into hospitals or schools. And I doubt this will be the last post-dated cheque Mr Blair signs before he hands over to the hapless Mr Brown.

Could Mr Blair have done any better in Brussels? One option was to tough it out and only surrender part of our rebate in return for a guarantee to cut CAP spending. This was indeed his stance at the start of Britain's EU presidency in July. Alas this was empty rhetoric. As the German broadsheet newspaper Welt am Sontag said:

"Tony Blair began his presidency as a tigerand ended up as a doormat. His failure will disappoint Europeans that deplore the fact that the EU spends 40% of its budget subsidizing a mere 2% of its working population."

To justify the deal Mr Blair argued that the UK had to make a concession on the rebate so that Britain pays its fair share of the costs of EU enlargement into Eastern Europe. But even here Mr Blair agreed the worst option for Britain. The UK could have got away with making a lump sum payment of £7bn to the EU rather than renegotiating the rebate mechanism. This option would have left the Treasury footing a bill of £1bn a year into the future rather than £1.9bn.

It is a mystery why this option was not pressed home more vigorously. The East Europeans were simply looking for more money. They would have agreed to leaving France isolated. But the plain fact is that Mr Blair is not a good negotiator.

In Brussels last month, his primary concern last month was not losing face. He wanted to secure his legacy at the end of his EU presidency without a budget deadlock. In short, as a Whitehall official might say, the UK ended up making concessions at the higher end of what was politically and fiscally tolerable.

In the final analysis, with the choice of betraying his EU colleagues or his country, Mr Blair opted for the latter. Over the four years prior to the deal the UK's net contribution to the EU has been £3.5bn a year. From now on it that will increase by 60% to £6bn a year. And in return Britain is to get less EU spending per head than any other member state. Some deal, Jack!

Last year the UK was 20th out of the 25 member states in terms of EU spending per head. But under the new deal Britain will be 27th out of an enlarged EU of 27 members. By comparison France receives twice as much per head as the UK. The Republic of Ireland, which is richer than the UK per capita, receives four times as much per head.

And so much for Mr Blair's commitment to cap administration and farm subsidy costs. EU administration costs are set to rise by 28% in real terms. In fact the budget for bureaucracy was increased by a further €1bn since the UK's original proposal two weeks earlier as a last minute sweetener for Belgium and Luxembourg to secure a budget deal. This is another example of obdurate behaviour reaping rewards in Brussels.

And what of the reaction from the British press? That CAP has not been reformed has been recognised. But the fact that farm spending is actually to increase has been overlooked.

CAP spending will take up a larger slice of the EU budget in the 2007-13 period than before. But the day after Tony Blair was baited by British Eurosceptics in Brussels for signing away our rebate, the Times and Guardian ran a headline story on killer superbugs in hospitals. The Independent focused on Iraq's election result. The Daily Mail ran a headline on final salary pensions. The Mirror went back to the Stephen Lawrence case, and even The Sun, formerly a bastion of Euroscepticism, told us that footballer Jonathan Woodgate had blown £2m gambling.

Only the Daily Telegraph saw Blair's betrayal as the headline story that day. The hacks in Wapping, in their wisdom, believe Europe is too boring to capture the minds of their readers. It is this apathy that's allowed our Prime Minister to give away £7bn for a handful of beans. David Cameron, meanwhile, has been too busy invading New Labour territory to take the Prime Minister to task over his blunders in Brussels.

Mr Blair gave away more than he needed to in order to save face and look magnanimous among his European peers. It is one of the pernicious side effects of Mr Blair's decision to step down as Prime Minister before the next election. His negotiating position does not necessarily coincide with the national interest. He is operating on a different time scale. The problem is that he has been generous with our money. But when the bills start flooding in he will be long gone.

Mr Brown's inheritance is looking tattier by the month.

By Brian Durrant for The Fleet Street Letter

Brian has contributed to MoneyWeek with his expertise in investment strategy, for example how to quadruple your dividend income and how to navigate through the stock market in the 2008 financial crisis. He’s also touched on personal finance such as the housing market and the UK economy.