Fri Nov 7, 2014 5:57am EST
* Budget issue damaging British support for staying in EU
* Britain gets back 66 pct of its net contribution to EU budget (Adds Spanish minister, figures on EU budget, poll numbers)
By Robin Emmott
BRUSSELS, Nov 7 (Reuters) - EU finance ministers told Britain on Friday that the only way to resolve a row over a surprise budget bill to Brussels is to pay in interest-free instalments, officials said, but Britain's finance minister insisted the bill was "unacceptable".
The row has become a highly contentious issue in Britain in the run-up to a general election in May, putting Prime Minister David Cameron under pressure from Eurosceptics at home and costing British support for the country's continued membership of the European Union.
"The demands for that Britain pays 1.7 billion pounds on the first of December is unacceptable," Chancellor George Osborne told reporters as he arrived for the meeting. "I will make sure we get a better deal for Britain."
Cameron, who displayed vivid anger over the issue at a summit in Brussels last month, has found sympathy from Italy, Germany and France because the bill is due to a historical statistical review stretching back over a decade.
Italy, which holds the EU's rotating presidency, presented the instalment compromise at a ministerial meeting in Brussels, seeking to give British Prime Minister David Cameron a way to save face over the 2.1 billion euro ($2.6 billion) bill.
Interest on the late payments would also be waived.
"We are open to being flexible," Spain's Economy Minister Luis De Guindos said as he arrived for the meeting.
But 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.
Ministers said they expect a political deal on Friday and the technical details to be worked out at another meeting on Nov. 14 in Brussels, before the Dec. 1 payment deadline.
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 technical and legal details of how the regulation stipulating full payment on Dec. 1 can be waived also require work and could need votes by ministers and even EU lawmakers.
STATISTICS, SEX AND DRUGS
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. (Additional reporting by Jan Strupczewski, Alastair Macdonald and Francesco Guarascio; Editing by Toby Chopra)
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