EU surcharge: Who knew what and when?

It was just a few minutes before they were due to arrive at a European summit that the UK's man in Brussels mentioned to David Cameron that there might be a problem: Britain had just been hit with a large bill.

As the two headed towards the Justus Lipsius building on Thursday in the prime minister's official car, Ivan Rogers ran through a briefing on climate change, the Ebola epidemic and other items on the formal agenda of the two-day summit.

Mr Rogers, Britain's permanent representative to the EU, then came to the sensitive subject which both he and Treasury officials had hoped could be avoided until after the summit: the imminent budget surcharge of €2.1bn to top up the EU's budget. At that point the details were still blurry, many questions were unanswered and Mr Cameron and his team thought they had at least a few days to deal with the problem. At 6pm on Thursday, their time ran out.

To the dismay of the travelling officials, the Financial Times told Downing Street it was running a story based on the leaked €2.1bn figure. Mr Cameron hastily arranged to meet Mark Rutte, the Dutch prime minister, as he sought out countries also hit by the European Commission surcharge. He was going to fight.

A mix of outrage at home from eurosceptics, personal anger at the sudden appearance of the bill, and some extremely unsympathetic EU colleagues made this one of the most frustrating and emotional summits of Mr Cameron's time as prime minister.

By Friday afternoon Mr Cameron stood at a press conference, his face flushed with anger, banging his hand on the lectern. "It is an appalling way to behave. I am not paying that bill on December 1," he said. "If people think I am they have got another thing coming."

His anger was genuine and stemmed from his disbelief that nobody had thought to mention to him at an earlier stage this "thumping bill" from the EU.

Yet it was not as if no one in the British government had been warned. As far back as May, the Treasury was aware of big upward revisions to Britain's national income by the Office for National Statistics. The consequences of this were laid out by the ONS in the very first paragraph of its report: "Gross National Income (GNI) is an important statistic within the National Accounts. It is used in the calculation of a Member State's contribution to the EU budget."

Last Friday the issue was discussed at a budget committee in Brussels attended by "junior civil servants and officials" in the "bowels" of the commission, according to George Osborne, the chancellor, but no red flags were raised. On Tuesday Mr Cameron briefed his Cabinet on the European summit, including coming talks on 2014 EU budget, still unaware of the looming problem of the bill.

Mr Osborne says the Treasury was told about the issue on Tuesday. Whitehall insiders say a note was put into the chancellor's "red box" that evening but the issue was not raised as a major concern.

It is unclear why Mr Osborne failed to raise the alarm with the prime minister - a rare breakdown in the close relationship between the two men. Whitehall insiders say Treasury officials were hoping to find a way around the problem before presenting the issue to Mr Cameron.

By Friday the prime minister was trying to fight back, winning some support from those facing a similar bills. "I will probably get in trouble for quoting him but he is such a reasonable man I'm sure he won't mind," Mr Cameron said of an intervention by Matteo Renzi, Italian prime minister, who also objected to his country's bill.

"He said, 'people have got to understand that this is not a figure - this is a lethal weapon'. Then he said, 'when people produce a lethal weapon like this, don't they understand that it leads to people, across Europe, thinking that the European Commission consists of technocrats and bureaucrats without a heart or a soul?'"

He and Mr Renzi were in a minority, however. According to someone who saw the notes of the meeting, Mr Cameron urged leaders at the summit to "push the pause button" on the payment process. But he received little support from Angela Merkel, the German chancellor, or the incoming and outgoing presidents of the European Commission, Jose Manuel Barroso and Jean-Claude Juncker.

One official said Ms Merkel was particularly blunt, telling Mr Cameron the figure "did not come out of the blue" and that his government should have been prepared. Downing Street said she agreed with Mr Cameron's call for this to be addressed by finance ministers. French President Francois Hollande, whose government is the recipient of a €1bn budget rebate, told Mr Cameron to "stick to the rules".

Mr Juncker, meanwhile, said those objecting to the surcharges should show "political leadership" and accept the decision.

In his press conference Mr Cameron publicly refused to play the blame game, although there will be plenty to be apportioned before he reports back on the debacle to Parliament on Monday.

"Yes, the Treasury had this information a little bit earlier but I don't seek to single people out and say, 'why didn't you tell me this?' or 'why didn't you tell me that?'," Mr Cameron said. "I think, frankly, it is a bit of a red herring. You can all do 'who knew what whens' and all the rest of it but actually, frankly, you don't need a Cluedo set to know that someone has been clubbed with the lead piping in the library."

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