Chancellor Gordon Brown is keen to cap EU spending

There have been calls for it to be scrapped - but Mr Brown said the rebate "remains justified."

Advocating an EU spending cap, he also said a proposed budget increase of up to 30% would be unacceptable.

The chancellor and other finance ministers are discussing EU spending priorities in the Hague.

Mr Brown wants prudence in the EU's �65bn a year budget without giving up the annual rebate worth �2.7bn a year on the UK's own contributions to the Brussels kitty.

The rebate was won by Margaret Thatcher 20 years ago because the UK's EU bills were unfairly high compared with those of other member states.

The European Commission says the rebate is no longer valid and should be scrapped.

But Mr Brown insists it is still fully justified - and it would require a unanimous decision of EU leaders to end it.

Britain is alone in defending its retention.

The rebate was granted because the UK did less well than most from a system of EU farm subsidies favouring nations of small inefficient farmers.

Farm reforms have since reduced the imbalance - but a British Government official denied this should alter the rebate.

He said: "There has been no change in the fundamental reason behind the rebate.

We are not uncomfortable about the pressure, because we are comfortable about the rationale for our position British Government official

"When that situation does change, then the situation of the rebate will change, but we are a very long way from that point at the moment."

The official added that although Britain is isolated in defending the rebate there are no concerns at mounting pressure for it to be abandoned.

He said: "We are not uncomfortable about the pressure, because we are comfortable about the rationale for our position.

"We are confident that others will come to see the wisdom of the rebate arrangement continuing, and we will continue to set out our arguments."

The discussions at the Hague, which are set to continue for several months, concern the shape of a new budget package to fund the expanded 25-nation EU from 2007 to 2013.