Talks on next year's European Union budget have reached deadlock after Europe's governments gave MEPs a "take it or leave it" ultimatum.
During negotiations in Brussels, the European Parliament accepted it could not win a controversial 6% rise next year and would have to take the 2.9% offered by ministers.
But the deal floundered when the MEPs demanded face-saving concessions linked to long-term EU spending priorities - including swift talks on a direct tax on citizens to raise EU funds. They were told it was 2.9% without strings or no deal at all - and left the table.
On Thursday night , Economic Secretary to the Treasury Justine Greening emerged from discussions with EU finance ministers and declared: "The MEPs agreed on a 2.9% increase, but they wanted long-term concessions which are not part of the talks about the EU budget for 2011. This is not the time to start the discussion on EU revenue raising and an EU tax.
"This is about next year, and David Cameron had the support of 13 member states to go no further than 2.9%. We are disappointed that this was not agreed tonight, but no deal is better than a bad deal for UK taxpayers. I hope MEPs will reflect on what is best."
Ms Greening said it was "neither sensible nor appropriate" to make long-terms discussions on spending priorities a part of the 2011 budget settlement, saying: "This is not the right place, or time and it is not necessary".
It is now up to MEPs to make the next move, but no formal meetings are planned. Ms Greening said that if no deal is done by the end of the year, the 2010 EU budget will be "rolled over" into next year on a monthly basis until the issue is resolved. That would effectively mean a freeze on EU spending, which is what the Prime Minister originally wanted.
German Green MEP Helga Trupel condemned ministers' unwillingness to compromise: "Certain member states seem to want to have their cake and eat it. The European Parliament had been, and remains, willing to agree to the (2.9%) in exchange for guarantees on the role of the European Parliament in future budgetary discussions.
"Unfortunately, the intransigence of a minority of member states, led by the UK, is blocking agreement."
She said MEPs wanted to secure a greater budget role for the European Parliament, as set out in the Lisbon Treaty - notably regarding the introduction of a system of "own resources" - a direct tax to pay for running the EU. But the idea is seen in Downing Street as an EU no-go area, as tax-raising is a sovereign matter for national authorities.