UK 'halves' EU budget bill, gets deadline extension

British finance minister George Osborne
Dan Kitwood / Staff | Getty Images News | Getty Images
British finance minister George Osborne

George Osborne, the U.K.'s Chancellor of the Exchequer, claimed on Friday that he had obtained a "result" for Britain, after striking a deal with fellow European finance ministers on a surcharge levied on the country.

Osborne had vowed to renegotiate the extra 2.1 billion euros (£1.7 billion) the European Union (EU) had asked the U.K. for.

Osborne struck a strident tone on arriving in Brussels for the regular EcoFin meeting of EU finance ministers on Friday. "The demand that Britain should pay £1.7 billion by the 1st December is unacceptable," he told reporters.

After the meeting, Osborne announced the bill would now be paid in two installments next year, and that the country would only pay £850 million. The reduction is the result of an agreement to offset the U.K. annual rebate against the funds demanded by the EU.

"We have halved the bill, delayed the bill and pay no interest on the bill," the Chancellor said in a tweet.

With a national election next May, and votes for Osborne's Conservative Party threatened by the anti-EU U.K. Independence Party (UKIP), any opportunity to look tough on Europe will be seized with both hands by the chancellor of the exchequer and Prime Minister David Cameron. Plus, the legacy of their party's former leader, Margaret Thatcher, who famously proclaimed "I want my money back!" when negotiating lower payments to Brussels, is never far from Conservative Party stalwarts' minds.

UKIP is nonetheless expected to make political capital out of the payment, with a by-election later this month.

The past few months have been one of the most fraught periods in the U.K.'s relationship with its EU colleagues for decades. The additional payment into the joint EU fund is part of a system where payments are altered if there is a big change in countries' expected performance, and is based on recalculations of how EU economies have performed since 1995.

In the past, the U.K. has benefited from rebates from the joint fund when it has performed worse than expected, and this time around, several countries have also been asked to pay more. For instance, the Netherlands has been asked to pay a 642 million euros surcharge this year.

"It's a problem for a number of countries, not just the British," Jeroen Dijsselbloem, finance minister for the Netherlands, said as he arrived at Friday's meeting.

Under the deal, the U.K. will be repaid its rebate upfront next year, rather than getting a rebate on contributions to the EU budget made the previous year.

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 including farming and foreign policy, and Britain and its EU partners agreed to it in February last year.

- By CNBC's Catherine Boyle and Antonia Matthews. Reuters contributed to this report.