Compulsory modulation is set to rise under new EU budget proposals, tabled by commission president Jos Manuel Barroso.

The plans are intended to kick-start negotiations on the EU’s financial perspectives for 2007-2013, which stalled last June, when Prime Minister Tony Blair refused to make any concessions on the UK’s budget rebate unless there was further reform of the CAP.

This was despite an agreement he had already signed in Brussels in 2002 fixing direct payments to farmers until 2013.

In a letter sent to Mr Blair last week, Mr Barroso said this agreement should be “fully respected”.

But he also called for “more dynamism” in agricultural spending and suggested a fundamental review of the EU budget.

Specifically, he called for a further shift in farm support away from direct aids and towards rural development.

This should be achieved by increasing the level of compulsory modulation by 1% a year from 2009.

Such a release of funds would benefit growth and jobs in rural areas, said a commission spokesman.

“It would also boost the funding for the EU’s innovative conservation network, NATURA 2000.”

But NFU senior economist Carmen Suarez said that would not necessarily be the outcome, as increasing rural development funding through modulation would probably result in reduced spending on this area from the rest of the EU budget.

She was also concerned that the UK would be unfairly discriminated against.

“For every euro we send to Brussels under EU modulation, we only get 80 cents back,” she said.

EU modulation is set at 3% and is due to rise to 5% by 2007.

But the UK already skims more off the single farm payment through national modulation, taking 5% in total this year and 10% next year.

In a further sop to Mr Blair, EU commission president Barroso has also called for a modernisation of the EU budget.

“The EU should commit itself to a comprehensive review with a view to ensuring it is equipped to respond to the challenges of the future.”

This process would begin in 2009 and could lead to full-scale CAP reform from 2013.

Irish Cattle and Sheep Association president Malcolm Thompson said this suggestion was “just pandering to the anti-farmer tendency of Mr Blair and others”.

Coming in the middle of the World Trade Organisation negotiations, it was “not helpful”.

Mr Blair said this week that he was determined to broker a deal on the EU’s future finances before the end of the UK’s presidency in December.

philip.clarke@rbi.co.uk