Tony Blair is ready to renegotiate Britain's annual £2 billion rebate from Brussels.

Foreign Office officials revealed the prime minister could be prepared to agree a compromise deal with the European Commission over the budget rebate famously negotiated by Margaret Thatcher in 1984.

He is thought to be prepared to consent to a redrawing of the system which would allow other member states who are net losers from the EU budget, such as Germany and the Netherlands, to share the rebate.

"We recognise that some other countries have problems with excessive contributions to the EU budget," the Foreign Office said.

"We are happy to consider options to address these problems provided that the UK's current position is fully protected."

The revelation comes as officials in Brussels signalled they wanted to review the deal as part of an overhaul of the EU's budget.

According to a draft document seen by EUpolitix.com, the commission is set to make the demand as part of changes to create a new-look budget for the European Union after 2007.

Margaret Thatcher originally gained the rebate in order to compensate the UK for comparatively low returns from the otherwise generous Common Agricultural Policy (CAP) which would have left Britain disproportionately out of pocket.

But the EU argues that times have changed - especially with the reform of the CAP earlier this year - and the deal must now be reconsidered.

Europe's budget has "significantly evolved," the paper states, arguing that "the rationale for maintaining the existing unique correction mechanism only for the UK should therefore be reconsidered".

Europe's enlargement to embrace poor countries from the former Soviet bloc has spurred the rethink of Britain's yearly payback, as well as "significant positive change in the economic position of the UK."

It is not the first time that the rebate has been challenged.

Budget commissioner Michaele Schreyer said in July that the rebate should be replaced with a mechanism that also takes into account the needs of other major EU nations like Germany.

And German chancellor Gerhard Schroeder also called for the rebate to be scrapped in 1999.

At the time Tony Blair said: "The abatement is non-negotiable as all of our partners know."

Europe's whole budget, over 100 billion euros annually, comes up for a seven-year review in 2006, when all aspects of EU spending are due for renegotiation.

According to an outline "communication", due out towards the end of November, officials are also considering an EU tax - a "possible introduction of a genuine VAT resource".

One commission official elaborated that this would function as a resource "attributed directly to the EU budget, not via member states".

Under consideration, the official said, was "some kind of tax that goes straight to the EU budget... this of course would have to be a harmonised tax."

The idea would be that "part of the levied VAT" in EU countries would bypass national coffers to go straight to Brussels to create "a real own resource".

The paper, still in the drafting process within the commission, should be unveiled in the second half of November, giving EU leaders the chance for a preliminary discussion at their December summit.

Concrete proposals would follow in the first half of next year.