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Chancellor Angela Merkel has reportedly warned David Cameron she would rather see the UK leave the EU than compromise over the principle of free movement.

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Chancellor for the Exchequer, George Osborne, announced on Friday the British government will only pay half of its £1.7bn EU bill. But Labour and UKIP warn Britain’s rebate system will leave UK tax payers burdened with the same mammoth sum.

Under Friday’s deal brokered with EU ministers in Brussels, the chancellor said the bill had been effectively halved. It was suggested Britain was now only liable for £850m, payable in two installments due after May’s general election.

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